• FREE TRADE AND THE AMERICAN CONSUMER

With the economy’s decade long exuberance becoming sedated and its fuel’s energy becoming forced to reconsider spending habits, the Free Trade forces, pro and con, have become seriously conflicted. Neither side knows what is right or wrong because no-one can really predict the long term outcome of either stance. Effective crystal balls in this domain are hard to find when it comes to free trade and our global economy. Undeniably free trade is the ultimate economic equalizer . . . at least globally.

For all of us staunch capitalists it is difficult to deny that there are signs the pro free trade argument may not be all we had hoped for.

Between countries of approximately equal standards of living, the impact on the participants is tempered and there is no overwhelming and imbalanced loss or gain. One example is the U.S. Canada trade relationship which is the world’s largest. Although there is no such thing as absolute Free trade, the current arrangement has contributed positively to both countries. There are many factors that affect the impact, but overall the outcome is positive.

When there is serious imbalance such as has existed between the U.S. and China or the U.S. and Mexico the long term impact on the respective societies can be extreme. Furthermore the current “arrangement” with China hardly resembles anyone’s definition of free trade since China has made it difficult for anything American to be brought in. Meanwhile, the American consumer has fuelled the creation of a vast Chinese middle class almost equal in size to the population of the U.S.

As long as there are new clusters of people on Earth whose life styles aren’t on par with that of the U.S., there will be someone willing to work for “lower” wages. With six and a half billion of us, there is a long way to go before there is anything resembling standard of living parity. If the world’s population continues to grow at present rates, it will never happen. Millions of service jobs currently performed by U.S. workers are vulnerable and potentially up for grabs by countries developing their own skilled work forces such as India, China and the Philippines. The lower the barriers to trade, the more opportunity for our corporations to find alternative sources for goods and services. While this has historically enabled the U.S. consumers to enjoy products they might not have otherwise been able to afford, it has also “spread the cash” far and wide.

Unfortunately, too much of the cash spent by U.S. consumers was borrowed, and too much of that borrowing was extracted from leveraged escalating real estate values. Now we stall for a while. By “we”, I mean everyone from here to New Delhi. Everyone has depended on the U.S. consumer, including Russia and Saudi Arabia, not just China and India.

This “stall” is an American consumer forced into restricting the “buy” urge. There is hope that this “stall” period will stimulate savings .

So what do you do?

Do you support free trade and watch incomes of the middle class continue to stall? Free trade works really well when you are the one doing the “selling”. Free trade has absolutely nothing to do with this new beloved term that has forced its way into our lexicon – outsourcing. Hiring foreign workers isn’t “trading”, it’s simply availing oneself of “cheaper labor”. All countries would wish to see it’s population employed. Or do you support protectionism to protect jobs? Protectionism would simply mean more expensive goods. Can you visualize almost every product in your local WalMart increased in price by a multiple of 10? Your 5 year old’s runners would be $200.00 instead of $20.00. Life would change. Reality - globalization is unstoppable. Our population is growing but the global community is shrinking.

No politician currently running for the office of president is presenting any answers to this dilemma, principally because there are none, . . . just opinions on differing sides of the argument. If you are your brother’s keeper, globalization is good and you await a note of gratitude from the recipients of your ‘debted’ benevolence. If you’re not your brother’s keeper, you’ll look for someone to set some onerous tariffs before your company out-sources your job. The odds are not good that your CEO will feel benevolent with your bank account, and history suggest he won’t suddenly discover altruism or wisdom. Just be grateful he’s not moving to Dubai.

Lack of moderation has brought us to the current economic slump. Moderation should absolutely prevail on both sides of the free trade argument and in the implementation of any corrective measures for us to weather the next few years. Another reality is that real average income has not only been stagnant for a whole generation, it has dropped. When you add this to spreading income inequality and wealth concentration, you get pressure for the implementation of balancing measures.

This is where creative minds get pushed.