10 Right-Wing Trade Myths

Myth 1: Unfettered free trade is mathematically superior. There are a lot of factors involved in an individual's and country's well-being. Such factors include equality, stability of both individual careers and national economies (lack of bubbles), health, the environment, homeland security, human rights, etc. Unfettered free-traders often ignore or under-weigh such factors and erroneously focus on just total wealth (such as GDP or GNP).

It may be true that GDP is easier to measure than the others, but being easy to measure and being important are not necessarily related. Their calculations focus too much on optimizing total GDP at the expense of other factors. The weight they give to the value of the tradeoffs is based on their personal or political preference, not some universal truth. Economists cannot tell me that I "should" value cheap trinkets at Wal-Mart more than a stable career, for example. In a democracy, people make such decisions, not economists. Economists can only tell us what the trade-offs are (at their best), not which path to walk.

Myth 2: Export surpluses (trade imbalances) are the only way for a 3rd-world country to grow economically. In this view we must allow 3rd-world nations to run a trade-imbalance with us in order to build up their economies. However, one can build up an economy by opening up local businesses by reducing the red-tape needed to do such. Countries should increase trade among their own citizens before depending on the US. The US did not grow into the largest economy via heavy trade, so why should we expect other countries to go the imbalance route (at our expense)?

Myth 3: The US has a trade deficit because our education system is poor and our students are lazy. This is one of the most powerful myths used by pro-trade lobbyists because it is very complex, difficult to refute, and Americans erroneously believe it as gospel truth. Studies by the non-profit Rand Corporation and various universities have refuted the myth that there is a "nerd shortage".

The real reason our students under-perform other nations is because students eventually realize that book knowledge is no longer the competitive advantage it once was. Becoming a manager or "sales king" is the easiest path to the upper middle class, not a stack of engineering books.

Hiring a PhD in India costs about one-fourth of what a US PhD receives. Why would any US student be motivated to get a PhD when such is the case? Brains are becoming a cheap global commodity and "geeks" are being told to learn people, sales, and business skills or risk being outsourced. Science and technology students discover that although such fields pay relatively well out of college, they don't have much upward mobility unless you go into management or sales at a tech company or department.

They also learn that such careers are highly volatile. Just like stocks and bonds, you expect a bigger payback in exchange for risk, but sci/tech careers are not delivering that risk premium over the longer run. If investments are expected pay a premium for volatility, why shouldn't careers? Not knowing when and which country your career will be outsourced to obviously adds uncertainty to a field.

The only way education can become our comparative advantage is to make it more flexible. Formal degrees perhaps should be done away with and replaced with a more affordable and adaptable multiple mini-degree program, a "just-in-time" modularized education that allows Americans to change gears faster than their 3rd-world counterparts. Americans have a higher tolerance for change than most our competitors (although free-trade change is stretching our patience), so we should use it for our education system also. Our education system needs to out-run the competition, not out-test them. Once a subject matter is commoditized enough to formally test on, it's often already ripe for offshoring.

Myth 4: People voted for free trade. Until the early 1960's, the US had pretty high tariffs on imported goods and services. The change to lower tariffs was mostly the political decisions of a few powerful individuals rather than something voters explicitly asked for. Businesses eventually grew addicted to cheap labor and began to actively lobby for it. In the 1970's factory and farm workers began loosing jobs, but there was the promise of "higher level" careers that kept the backlash from growing too large. However, now that it is also eating into highly technical and knowledge-intensive professions, this is changing. Education (above) is no longer a safe haven from the widening career cannons of free trade.

Myth 5: "Jobs that Americans don't want". Pro-trade and pro-work-visa lobbyists often use this phrase to justify the temporary importation or offshoring of labor. They are jobs Americans don't want anymore because globalization has "flooded" them, dragging the wages, hours, and conditions down below McDonalds cashier levels. It is another clever lobbyist-induced self-fulfilling prophecy. It's like poisoning cattle and then claiming that "nobody likes to eat cattle anymore, so we should poison more."

Myth 6: If non-Americans want to work for less money than Americans, then they deserve the job. There are at least two problems with this reasoning. First, the cost of living is often lower in 3rd-world countries. For example, even though an Indian programmer earns about 1/4 of a US counterpart, he or she can often afford a house maid, a luxury beyond the wages of most US programmers. They are not bidding lower because they are more willing to sacrifice, but because either US wages go much further in their home country, or they have fewer alternatives. The second problem is the assumption that sucking jobs from the US is the only way for a country to get ahead. See Myth #2 for a response to this.

Myth 7: Lack of free trade caused the Great Depression. The biggest problem with this myth is that the US had a trade surplus at the time trade was reigned in. A trade surplus is a good thing and they stopped this good thing early in the depression cycle. Nobody is disputing that yanking away a surplus is a bad thing. The fact that so many Asian countries currently rig their currencies and regulations to keep their surpluses is evidence of this.

Second, free trade may have contributed to the Great Depression by tying economies too close together. The problems of one nation are easier to "leak" into other nations if their economies are heavily dependent on each other.

Myth 8: Most who oppose free trade are xenophobic. Some of these accusations are merely slanderous personal attacks. Others are due to confusion between temporary workers (legal and illegal) and immigrants. Temporary workers, such as farm workers and information technology workers, often send most of their paychecks back to their home country. However, immigrants tend to lay down roots and consume US services, keeping more money in the US. They are also less likely to tolerate labor abuses such as unpaid overtime and sub-minimum wages. Such abuses result in American citizens having to compete with virtual slaves for the same job. Of course employers are going to prefer near-slaves over citizens.

Myth 9: Opposing free trade is communism. This is merely yet another slanderous personal attack. Until the mid-1960's, tariffs were fairly high in the US such that trade was at a much lower point than it is today. Does this mean that the US was "communist" until the 1960's? Free-traders got some splainin' to do.

Myth 10: Opposing free trade is opposing all trade. Most of those who have a gripe against free trade do not want to end all trade. They merely want more balance. Currently, the US has a giant trade deficit. If we put pressure on say China to open up its markets to our goods and services or face tariffs, they may actually start complying under such pressure. Not only would our trade deficit go down, but total trade may stay the same and even increase. If we offer no incentive for them to balance their trade, they won't be motivated do it.

Huge trade imbalances also risk nasty bubble bursts, not unlike the turmoil caused by the 2008 mortgage crisis and the dot-com meltdown recession of 2001-2004. Large imbalances often snap back with a vengeance. Our trade deficit's Karma may not be friendly at all.