Free Trade

A new Wall Street  Journal/NBC poll concludes that Americans have largely given up on the idea that free trade is good for the economy.

According to the Journal more than half the people polled say that free trade has hurt the U.S. economy. That's up 66% over the last 10 years. It's one thing for blue collar workers, unionized and non-unionized, to feel that free trade is responsible for jobs being shipped to South America or Asia. But 95% of upper income, highly educated respondents agreed that such outsourcing is responsible for our ailing economy.

But free trade is a two-edge sword. The same people lambasting it are the same ones walking out of Walmart with $89 DVD players. The fact is that the issue of free trade goes hand-in-hand with monetary policy. In fact, one of the factors in Congress currently igniting the firestorm over free trade is the value of the Chinese yuan compared to the U.S. dollar and China's apparent unwillingness to let its currency rise in value. Chinese currency manipuation has made Chinese goods a bargain here, and U.S. goods in China hopelessly uncompetitive.

But for many years U.S. monetary policy has resulted in low-cost imports, cushioning the blow from the loss of so many manufacturing jobs. Per capita income may have declined with outsourcing, but the U.S. manipulated the value of the dollar to cushion the blow of lost jobs.

The fact is the number one job of central banks is to value their currencies in such as way as to promote domestic bliss. Neither China nor the U.S. is an exception nor exceptional when it comes to this.

But turning our back on global trade right now is the wrong thing to do. In 1930 Congress passed, and Republican President Herbert Hoover signed, the Smoot-Hawley tariff bill. Why? Because in the midst of economic distress the popular belief was that the U.S. was being disadvantaged in the global trade of agriculture products. Then, as now, Congress believed that taxing imports would improve the economy by "leveling the playing field" for American exports-the same rationale the anti-globalization crowd gives for its opposition to expanding free trade. The result in 1930 was a global trade war that further plunged the U.S. and the rest of the world into what we now know was the Great Depression. Protectionist policies 80 years later would have the same result.

Like it or not we live in a global economy. Igniting a trade war will deny our farmers, manufacturers, service companies and entertainment industry access to important markets and further weaken our economy. Once again, as with healthcare, education, and social welfare, Congress will end up hurting the very people it purports to help.

Just thought you might like to know.