I ♥ NAFTA!
The North American Free Trade Agreement is in the news, again. While I disagree with the argument against free trade, lowering the cost of trade benefits consumers and extends the great equalizer, comparative advantage. Trade issues are becoming increasingly complicated by the established precedents of past agreements. For example, developing countries dissatisfied with the results of current agreements and workers in developed countries have legitimate concerns that deserve attention. Concerns that if they are not resolved will continue to stall if not deteriorate trade agreements and long term prospects for growth and development.
It’s worthwhile taking a moment to examine the current history of global trade relations. Seattle, 1999 the launch of the new millennial round of trade negotiations, activists estimated at 40,000, took to the streets in protest of the perceived subversion of democracy represented by the WTO. In July 2006 the Doha Development Round negotiations organized again by the WTO were suspended. Doha set out to achieve results like trade related aspects of intellectual property rights, agriculture, anti-dumping and subsidies. Ultimately, Doha witnessed developing countries taking a stand against any further agreements. Talks collapsed over the unwillingness of Europe and the US to pull back on domestic agriculture subsidies that provide an unfair advantage to domestic producers over cheaper developing countries. Developing economies have a comparative advantage in the production of agriculture in a truly free and fair market. Consumers too are put at a disadvantage in being forced to pay twice, with their tax dollars to subsidize production and at the grocer. What is the future of free trade without correcting this primary flaw? How do we expect economies to develop without letting them jump the first hurdle in development, agricultural sustainability.
The backlash against trade in developed economies is again becoming a political issue, a litmus test for prospective presidential candidates. Critics and workers see these agreements as unfair because they do not mandate the same level of environmental and labor standards. Domestic manufacturing is put at a disadvantage when the legal infrastructure they operate in does not apply to their foreign competition. Reflexively gutting legislation that has been passed for the public good cannot solve the problem while amending them into trade agreements provides the benefit while leveling the playing field.
What is more important in this conversation though is how independent nations respond to the reality of trade. Is there a role for government in maintaining competitiveness? Is it too socialist to talk about central planning in a meaningful way that will benefit the nation? What does central planning even mean or represent from a policy perspective? I believe central planning in economic matters is the same as with other areas of war and peace, maintaining national security and allocating resources efficiently.
The Automobile industry, America’s largest manufacturer, provides a fine example of a situation where central planning and national security meet in economic terms. Today, America consumes something like ¼ of all petroleum production in the world. We are so reliant on this largely foreign energy source that its relative supply impacts our economies prospects for growth. As it happens attempts to mandate stricter fuel efficiency standards on domestic automobile manufacturer’s failed because of fear that it would be too costly, that the market would decide. Well, rising prices have domestic manufacturer’s continuing to loss market share to more fuel efficient foreign company’s and we are scrambling to catch up. GM just lost $722 million in the fourth quarter of 2007 while Ford announced a net loss of $2.7 billion for 2007, an improvement over its 2006 record loss of $12.6 billion. American car manufacturers and the plants they continue to operate in America are in jeopardy because of competition sure, however, they are also not making cars people want to own because they failed to forecast correctly changing consumer demand. Who can argue that energy consumption does not matter in the broad spectrum of national security concerns?
What other role can we agree, from a purely economics perspective, can domestic central planning take to counteract the negative affects of trade on the economy? First, the structure and investment in the education system has to adjust in order to maintain our primary comparative advantage, an educated, innovative workforce. Government programs providing manageable university loans and grants to anyone willing to pursue a higher education is a must. Second, incentive based investments that service national security needs such as energy independence in what we can manufacture in this country. If we can heat our homes and run cars without consuming fossil fuels than our government should be throwing its weight into these efforts for the sake of the economy and country. Finally, regulation, there is a reason that things are certified by the FDA, standards are important and policing them for us is an increasingly important public good.
The North American Free Trade Agreement is in the news, again. While I disagree with the argument against free trade, lowering the cost of trade benefits consumers and extends the great equalizer, comparative advantage. Trade issues are becoming increasingly complicated by the established precedents of past agreements. For example, developing countries dissatisfied with the results of current agreements and workers in developed countries have legitimate concerns that deserve attention. Concerns that if they are not resolved will continue to stall if not deteriorate trade agreements and long term prospects for growth and development.
It’s worthwhile taking a moment to examine the current history of global trade relations. Seattle, 1999 the launch of the new millennial round of trade negotiations, activists estimated at 40,000, took to the streets in protest of the perceived subversion of democracy represented by the WTO. In July 2006 the Doha Development Round negotiations organized again by the WTO were suspended. Doha set out to achieve results like trade related aspects of intellectual property rights, agriculture, anti-dumping and subsidies. Ultimately, Doha witnessed developing countries taking a stand against any further agreements. Talks collapsed over the unwillingness of Europe and the US to pull back on domestic agriculture subsidies that provide an unfair advantage to domestic producers over cheaper developing countries. Developing economies have a comparative advantage in the production of agriculture in a truly free and fair market. Consumers too are put at a disadvantage in being forced to pay twice, with their tax dollars to subsidize production and at the grocer. What is the future of free trade without correcting this primary flaw? How do we expect economies to develop without letting them jump the first hurdle in development, agricultural sustainability.
The backlash against trade in developed economies is again becoming a political issue, a litmus test for prospective presidential candidates. Critics and workers see these agreements as unfair because they do not mandate the same level of environmental and labor standards. Domestic manufacturing is put at a disadvantage when the legal infrastructure they operate in does not apply to their foreign competition. Reflexively gutting legislation that has been passed for the public good cannot solve the problem while amending them into trade agreements provides the benefit while leveling the playing field.
What is more important in this conversation though is how independent nations respond to the reality of trade. Is there a role for government in maintaining competitiveness? Is it too socialist to talk about central planning in a meaningful way that will benefit the nation? What does central planning even mean or represent from a policy perspective? I believe central planning in economic matters is the same as with other areas of war and peace, maintaining national security and allocating resources efficiently.
The Automobile industry, America’s largest manufacturer, provides a fine example of a situation where central planning and national security meet in economic terms. Today, America consumes something like ¼ of all petroleum production in the world. We are so reliant on this largely foreign energy source that its relative supply impacts our economies prospects for growth. As it happens attempts to mandate stricter fuel efficiency standards on domestic automobile manufacturer’s failed because of fear that it would be too costly, that the market would decide. Well, rising prices have domestic manufacturer’s continuing to loss market share to more fuel efficient foreign company’s and we are scrambling to catch up. GM just lost $722 million in the fourth quarter of 2007 while Ford announced a net loss of $2.7 billion for 2007, an improvement over its 2006 record loss of $12.6 billion. American car manufacturers and the plants they continue to operate in America are in jeopardy because of competition sure, however, they are also not making cars people want to own because they failed to forecast correctly changing consumer demand. Who can argue that energy consumption does not matter in the broad spectrum of national security concerns?
What other role can we agree, from a purely economics perspective, can domestic central planning take to counteract the negative affects of trade on the economy? First, the structure and investment in the education system has to adjust in order to maintain our primary comparative advantage, an educated, innovative workforce. Government programs providing manageable university loans and grants to anyone willing to pursue a higher education is a must. Second, incentive based investments that service national security needs such as energy independence in what we can manufacture in this country. If we can heat our homes and run cars without consuming fossil fuels than our government should be throwing its weight into these efforts for the sake of the economy and country. Finally, regulation, there is a reason that things are certified by the FDA, standards are important and policing them for us is an increasingly important public good.
The sooner we accept these realities the sooner we might begin to progress in a more sustained and equitable manner. Cutting the political and ideological noose to allow democratic and capitalist systems that our forefathers built over generations to work.
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