Thursday , February 23 2017

Free trade cost Secretary Clinton the 2016 US presidential election

Donald Bates, PhD
President, Gulf University for Science & Technology
Forget health care, immigration, terrorism, tax reform and Supreme Court appointments, Secretary Clinton lost the USA presidential election because she didn’t address a faltering economy and a hurting middle class. Specifically, the loss of middle class jobs in the states that traditionally voted Democrat, eg: Ohio, Wisconsin, Pennsylvania, North Carolina. The jobs were lost through free trade agreements ironically supported and signed by her husband Bill Clinton, the 42nd President of the USA.

Free trade is one of the strongest tools in the liberal Politian’s arsenal. Free trade is an unproven theoretical concept based on comparative advantage put forth by the economic elite who have no practical experience. The simple and ridiculous (as will be shown later) analytical concept of ceteris paribus is the tool used to justify this unproven theory.

Comparative advantage is the ability of a country to produce a commodity, for example crude oil, at a lesser cost than other countries hence it will produce an excess of crude oil and trade the excess to another country for their comparative advantage product, eg: rice. Both countries are gaining maximum benefit from their scarce resources. The source of the comparative advantage is typically rooted in some natural resource such as population, education or raw material, eg: iron ore, oil, etc.

Ceteris paribus is a Latin phrase meaning “all others things being unchanged.” The term is used in economics when explaining the effect of changes in one variable on changes in another variable without having to worry about dealing with the possible other changes that may occur. For example, “An increase in the price of oil will result, ceteris paribus, in less oil being sold and a lower economy.” This doesn’t consider the impact of the price increase on substitute products such as coal, natural gas or other energy substitutes, eg: solar, wind. Since everything is connected, ceteris paribus, is silly because it eliminates the need for the economist to deal with reality.

The USA economy has been moving towards globalization since the North American Free Trade Association (NAFTA) came into effect in 1992. Also, in 1995 trade with China began to increase. We no longer must rely on theoretical economics unrealistic ceteris paribus analyses to examine the impact of free trade. Instead, we have actual data to work with and we can see that free trade is not free it has serious economic and social costs that are glaringly evident when examining the real data.

First, countries do not leave all things the same as assumed by the economic elite in their analysis. Past history of free trade clearly shows that countries manipulate their currencies to their own advantage in the trading, eg: China. Therefore, the all things remaining unchanged assumption is false.

Second, the assumption in free trade is that labor is mobile, and will go where the jobs are, and that higher skilled (and hence higher paying) jobs will be available as the country redirects its effort to competitively advantage sectors of the economy.

What will a 45-year-old, fourth generation, manufacturing worker with a high school education, wife and three children and almost 30-years work experience being paid $35 an hour do when his job is exported under free trade? Does he forget his family obligations return to college and earn a degree in electrical engineering and move to the Silicon Valley where the new higher skilled jobs were created?


This is a patently naive assumption on at least two counts. First there are generational family ties as well as current family relationships that fit into a lifestyle that are impossible if not difficult to break. Hence, free geographic relocation is not feasible.

What job is going to be created that will match the displaced person’s skill set? In all likelihood, it will be a service sector position that pays about one half of his base salary, and in many cases without benefits. The mobility of labor assumption of free trade is also false.

Free trade, and NAFTA specifically, has proven to be a nightmare for working families in the USA — more than one million middle class jobs have disappeared from the State of Ohio alone. When the fortunate laid off workers find new jobs, they earn 23 percent less on average than at their previous employment. The unfortunate laid off workers that cannot find employment are doomed to a life of poverty based on government handouts. This is one reason the children of the victims of free trade, for the first time in the history of the USA, feel that they will not do as well financially as their parents.

The NAFTA experience demonstrates how basic labor rights and the interests of working families are eroded by “free trade” agreements that lack enforceable labor protections and corporations use the threat to counter organized labor initiatives. A Cornell University study showed that since NAFTA came into effect two-thirds of manufacturing and communications companies faced with organized workforce initiatives countered by threatening workers with moving their jobs abroad.

If the Middle Class Working families loose in free trade-who benefits from free trade? The wealthy — because they own the capital which increases in value as companies produce at the lowest cost. As the country and regional markets merge into a single global market the number of market-leading companies worldwide drops as multinational corporations buy out or “squeeze out” smaller locally owned companies. This process concentrates wealth among fewer corporations. This further hinders organized labor’s ability to negotiate.

The unemployed in the foreign country benefit as they find employment where none existed previously. Unfortunately for candidate Clinton these persons are not voters in the USA. However, the jobs for the foreign workers are at a wage lower than what would be paid in the USA. This “race-to-the-bottom of the wage scale” will accelerate under free trade as corporations’ pit exploited workers in one country against even more desperate workers in other free trade countries. The evidence already exists because some 280,000 jobs in the past two years have vanished from Mexico with the closure of more than 350 Mexico based companies that moved their production to Haiti and other lower labor cost countries. So even the advantages of free trade may be short lived.

We do not have to rely on liberal economic untested theory with the silly assumption that all other things stay the same, we have masses of actual data as well as many case studies that clearly demonstrate that free trade has no long-term benefits to any country and it is destroying the middle class in the USA.

As my favorite economics professor in college used to say, “The worst thing that can happen to an economist is their model be made the basis for decisions because then all the faults and weakness become glaringly apparent!” This is what happened with free trade theory’s implementation. Evidence clearly demonstrates the biggest losers in free trade is the USA middle class as they watch their jobs disappear to other lower cost countries. As one former auto worker said “What good is it if I can buy a $25 shirt for $4.00 if I don’t have a job to earn the $4.00?”

This group of free trade economically displaced workers quite simply is the group Secretary Clinton forgot in the 2016 Presidential election. She focused too much on social issues and forgot the basic principle — it’s all about the economy.

By Donald Bates, PhD

President, Gulf University for Science & Technology

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