It’s preposterous. There’s no problem that’s getting addressed with this solution, this is a solution in search of some problem.
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The Case for Fair Trade
enhance our national security. Some Americans historically have supported open borders and offshoring under the flag of the Ricardian trade model, which assumes the free flow of both labor and capital. Yet it is equally true that open borders and offshoring also help American multinational corporations to maximize their profits by minimizing their labor and environmental protection costs.
In particular, an open border policy, which allows for the unlimited migration of cheap labor, depresses American wage rates and thereby boosts corporate profits. At the same time, offshoring gives American corporations readier access to the sweatshops and pollution havens of Asia and Latin America. Our skies and water may be cleaner, and our products may be cheaper, Main Street manufacturers and workers bear the brunt of these policies.
The obvious political problem in adopting many of the policies proposed here is that they will be opposed by the special-interest groups that benefit from open borders and offshoring and that contribute lavishly to both political parties. These special-interest groups range from the hedge funds of Wall Street and tech entrepreneurs of Silicon Valley to big-box retailers that stuff their aisles particularly with cheap “Made in China” goods.
YES, TRADE DEFICITS MATTER
[O]ur country has been behaving like an extraordinarily rich family that possesses an immense farm. In order to consume 4% more than we produce— that’s the trade deficit—we have, day by day, been both selling pieces of the farm and increasing the mortgage on what we still own.
Warren Buffett®”
Historically, one line of attack against attempts to implement fair trade policies in the name of reducing America’s massive and chronic trade deficit has been the claim that “trade deficits don’t matter.” The intellectual tip of this spear has often been think tanks that generate reams of analyses in support of a purely free trade (and open borders) American posture.** Yet both common sense and several very good reasons tell us that trade deficits matter a great deal.
Economic Security. The economic security argument that trade deficits matter begins with the observation that growth in any country’s real, inflation-adjusted gross domestic product (GDP) depends on only four factors: consumption, government spending, business investment, and net exports (the difference between exports and imports). Reducing a trade deficit through implementation of the US. Reciprocal Trade Act, the application of tariffs, or renegotiating a bad trade deal like NAFTA all represent ways to increase net exports—and thereby boost the rate of economic growth.