Much in the news so time to review because there is a long history. Export all you can and protect the homeland with high tariffs and let the money pile up. Have colonies for cheap raw material but, in a formula for revolution, don’t let them actually start to make things.
Thought revolution came in the 1800s, as I learned in long-time ISU Professor Virginia Owen’s class. Industrial England turned out cloth cheap, efficient and of high quality. The sun shines bright in Kentucky and Portugal as well but is pale in England. That sun is great for wine grapes and Portugal can make it cheaply, efficiently and very high quality. There is what became known as comparative advantage. Would it not be a win-win if there were free trade in what each could do better?
With that logic then, President Bill Clinton summoned all ambulant former presidents back to lobby for NAFTA. It is ironic that corn was developed in Mexico and Central America long ago but now is our Midwestern baby. One of our acres can produce five times what they get in Mexico. Twenty-five years ago, Mexico was not on our agricultural radar screen but has overtaken Japan, still a great customer, as No. 1 corn customer. Two huge winners are the Mexican consumer and the Illinois Department of Revenue. Comparative advantage is a two-way street. Weather and lower labor costs make Mexican produce a great bargain for U.S. consumers.
Discussion went back and forth but in 1930, a Republican Congress - in order to protect American jobs - instituted the highest tariff ever. American exports plummeted from over $5 billion to less than $2 billion in a few months. The Depression is over but we are still working our way out of that pit.
Free trade and investment also has a keep-us-on-our-toes element. One thinks of Japan as high quality but it wasn’t always that way. After the war, quality became Job One. In the 1960s, cute little European bugs were our only alternative to an oligopoly of three makers and a monopoly of one labor union. This bred inefficiency, sloth and arrogance. Gasoline went from 29.9 cents to the horror of a whole dollar a gallon. The Japanese alternatives weren’t very sleek but of high quality and fuel efficient. Fearing American protection in the wind and with rising labor costs at home, they and Germans started building them here. I believe Ford has realized its Quality is Job One motto, but that foreign competition nudge helped.
The next chapter builds up steam after the 1994 NAFTA agreement with outsourcing, the race to the bottom and young people borrowing their parents' BMWs to drive to rallies to protest globalization. Off for the summer, I am wearing a nice pair of made-in-Bangladesh shorts I bought at a great price at Kohl’s. The argument is that corporate America (Kohl’s, Walmart, etc.) is raking in huge profits, costing American jobs and exploiting mostly women in the third world.
Perspective comes from my wife’s favorite Elizabeth Gaskell in 1850’s “North and South.” Factory work in the north of England was grimy and hard but the family could eat meat every night. In the pristine rural South, poverty was grinding and meat was once a week if you were lucky. Take your pick.
Free trade is not anything goes. A young woman came up to my wife in China and with pride told her she had translated her book, “Business Communication in the Global Workplace,” into Chinese. That is theft. To invest in China, foreign companies must have Chinese partners and share relevant technology. Unfair currency manipulation, secret government subsidy or simply financial strength products are sold in a host country at well below cost. Host country manufacturers go broke and guess what happens to the prices? What to do? Let them continue in their ways, work quietly hoping reform comes, or what seems to be the current policy: yell, scream and retaliate with tariffs until they see the light.
Liberals and conservatives say trade wars are bad and tariffs hurt ordinary people. Hope they remember warn the next chapter unfolds.