Is Free Trade The Problem?

Historically, the US started out with tariffs on imports from our founding in 1789 until the end of World War 2 in 1945.   We adopted free trade as a means to rebuild the war damaged societies of Europe and Japan, there being a strong “incentive” in the form of the Soviet Union, which at the end of World War 2 had occupied all of eastern Europe with the division of Germany into two “occupied zones”, the east held by the USSR, and the western portion under the control of the US, Great Britain, and France.  In Asia there was also a “threat” in the form of a civil war in China between the Nationalists and the Communists under Mao.  So the redevelopment of Japan was also a consideration here.

At the end of World War 2 the USA was the only undamaged major economic power left. The rest of the developed world including the Soviet Union had suffered much damage from the war, while the USA had emerged from the war economically stronger than ever!  Thus there was little if any concern about “economic competition”.  Everyone needed what the US could produce, and what little they could export to us was relatively “a drop in the bucket”.  The US was completely independent in energy, our industry was now #1 in the world.  The few European cars and Japanese optical goods we took in trade had little if any effect on our economy.  We were the manufacturing “powerhouse” of the world!  Wages were high, most manufacturing was unionized, and this was America’s “Golden Age”.  True, there was the “threat” from the Communists, now in control of China’s many hundreds of millions, with Marxist movements threatening a number of countries.  But so far as the American worker was concerned, the future was “golden”.  Free trade seemed to be a benefit to America, although growing “competition” from European and Japanese automobiles was creating “concern” in “Detroit”.  What had been left of the American optical industry had died a slow death with Japanese imports replacing ours.  But no one really cared that much and those Japanese SLR’s were great!

The US auto industry started to feel the “pain” from imports here in the late 1960’s, but there still were plenty of Americans who wanted “Detroit Iron”, especially given the low US gasoline prices.  However, there were “warning signs” on the horizon for those who cared to look…  We were importing oil now from the Middle East because we no longer could produce enough to meet our own needs.  The US auto makers did attempt to make cars that got the sort of gasoline mileage that the European and Japanese imports did, but due to US labor costs, the cars produced suffered in quality to those made elsewhere.  The Chevrolet Vega is a good example.  Low quality, not well designed, and with a short lived engine.  Then there was the Pinto, which if struck in the rear end, could catch fire!

The “jolt” came in 1975, when the Arabs decided to withhold oil because of US and European actions.  Suddenly we found that we had become “dependent” upon foreign suppliers for oil.  That those big two ton plus “barges” we liked so well simply drank too much gasoline!  Whereas the Toyota’s designed for Japanese gasoline prices, could go much further on a gallon of gasoline than did cars like the big Oldsmobile 98’s with their 455 cubic inch engines.  It was much better to have a Toyota that got 20 mpg in town than a big “road monster” that got 10 mpg.  One problem was that US auto makers had gotten well used to earning big profits on their “heavy iron” vehicles, and switching over to the more desirable high efficiency vehicles now desired was a serious problem.  As a matter of fact, it was the inability of Detroit to sell its more profitable heavyweights that eventually resulted in bankruptcy of GM and Chrysler back there in 2009.  Along with the decline in incomes that came about because we were less and less competitive with the rest of the world.  Especially with countries like China where their labor costs were only a tenth (10%) of our own.  However, much of what China makes and sells here isn’t the real problem.  Other countries like Germany manage to compete.  Our problem is in my opinion more “political” than economic.  For one, Germany’s educational systems puts ours to shame.  Their labor force is more highly skilled than ours.  They tax their businesses much less than we do.  Their health care system (which covers all their own citizens) costs a whole lot than does ours.  Roughly 1/2 of our own if you want to know.  This is really “where” the problem is for the USA.  We have the highest business taxes of any developed country.  Our educational system is not adequate and costs too much for what we get out of it.  Our health care costs are TWICE those of Germany on a per capita basis.  We simply have “too much overhead”.  Our cost of living is too high.  Our political system frankly leaves a whole lot to be desired.  Effectively our standard of living is in fact falling.  Our young people earn “less” today than did their parents at the same age.

The reader is perhaps thinking:  “Maybe we need to go back to have a tariff again?”.  Could we do it?  So far as the legislation is concerned, I suppose it is possible to do.  However there are some serious consequences to be considered.  We no longer now produce many of the things we import now.  Since it was cheaper to import stuff than build things here, we let the manufacturers of these things go bankrupt.  Or we sold the ability to produce these things to China because they could make them for less money.  Much of our electronics industry is dependent upon foreign made parts.  Same thing for optical goods.  Your computer you’re using to read this probably says “Made in China” somewhere on it.  Your digital camera was made somewhere across the Pacific Ocean. Pick up most any consumer product today and you’ll see that it wasn’t “made here”.  When Japan had its earthquake and tsunami, GM had to stop making some of its vehicles because the transmissions were made in Japan. We’d probably survive cutting ourselves off from the rest of the world, but it would create a serious economic problem for a while until we could start making all the stuff that we now import from outside the US.  So that doesn’t seem to me to be a very wise move, even if the administration was willing to do it.  It make much more sense to “fix” the problems we have instead!  They are all indeed “fixable”.  Other countries have done it.  There’s no reason we can’t too!

“Protectionism” isn’t the “answer”.  While there would be some increase in employment in manufacturing, there would be increased unemployment elsewhere in our economy.  Prices of consumer goods would rise, and lessened competition would mean that our manufacturers would be free to produce lower quality products because they would not have to compete with better quality products made elsewhere.  Do we want back the kind of cars our own manufacturers were building back in the ’70’s?  Then too protectionism is likely to lead to a “trade war”.  Our own exports would suffer.  The world would become poorer.  So obviously “protection” of the sort we used in the past isn’t the solution today.  It wouldn’t solve our problems as a nation even if it did help some of our industries.  Employment wouldn’t be increased that much since higher wages generally lead to increased automation in turn. And of course the consumer would take a “hit” with fewer choices and more expensive products.  We’d likely see something like the economic effects of the late ’70’s where we had both inflation and increased unemployment at the same time.  Consumer “choice” would be reduced.  Overall we’d become a “poorer” country because most things would cost more, but outside of manufacturing, wages would likely remain stagnant like today’s thanks to lack of demand.  All in all, it wouldn’t be a good thing for many Americans, especially those now working for relatively low incomes.  They’d end up paying quite a bit more for the consumer goods they bought.

So what could we do to make things better?  For one thing, we have had the 40 hour work week now since the Great Depression of the ’30’s, even though the productivity of labor has increased by a great deal since that time.  As the total amount of labor needed today is decreasing thanks to the increased use of high technology, what we need to do is reduce the work week to one that better reflects the changes that have taken place since the 1940’s.  Studies have shown that an eight hour working day is actually too long for maximum productivity per working hour.  The best level of productivity per hour came with a 6 hour working day.  So reducing the number of hours worked will increase both productivity per hour and also increase the level of employment at the same time.  The major objection to doing this is the cost of employer provided “benefits” which are a fixed cost per employee regardless of hours worked.  However, it should be noted that the basic concept of “benefits” came about during World War 2 when because of government controls over wages, employers started offering “benefits” in place of the higher wages the government had forbidden them to pay.  In other countries things are done quite differently.  The benefits people receive are provided as a “public benefit” paid for through taxes.  The employee pays taxes, the employer pays taxes, and the benefit is provided as a benefit of being a citizen of the country.  Obviously we could do the same thing here in the USA if we wanted to do so.  The Clinton Health Plan (far superior to Obamacare) used a progressive payroll tax to finance a system of national health care where insurance companies would compete against each other to offer “group” policies to large numbers of people.  Under such a system, unlike Obamacare, everyone pays according to their income and everyone has “basic coverage” with a system of private pay for those who want more… Much like the Medicare Advantage system that many seniors (including yours truly) have today.  Of course without all the laws and regulations that make US health care now the world’s most expensive, the cost of all this would likely be considerably less than what we have today.  Most likely the cost would be comparable to that of Germany or France, both countries having health care systems that are rated as superior to our own, but at a much lower level of cost.  Nor does such a system need to be “government run” by the federal government.  The VA operates a system of health care that is objectively superior and also costs much less. See the book, “The Best Care Anywhere” by Phillip Longman (available at your public library) for details.  Such a system could also be operated by a non-profit organization instead of the government.  Or by a religious group for its own members.  We don’t need “government” to do all these things by any means!  Government often creates more problems than it solves!

In any case, we do need to relieve employers of the cost of providing “benefits”.  Without having to provide benefits, employers would be far more willing to accept having workers working fewer hours a day, or fewer days in the work week.  There is no good reason to continue with the 8 hour day and the 40 hour week except for “benefits” which are a fixed cost per employee for employers.  Once relieved of the cost of these, employers should be much more willing to accept a shorter working day and perhaps a shorter working week.  With the continued development of technology, we are not in any case going to need 8 hours a day and 40 hours a week as the standard.  Something in the 30 to 35 hour range makes considerably more sense and also increases productivity too!


About muskegonlibertarian

77 year old retired owner of a security guard agency. Member of the Libertarian Party.
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