Monthly Article

April 2016 Monthly Article – The Support for Free Trade

By Jerry Pacheco

FreeTrade-country_flags_blog_main_horizontalIn 2015, a Pew Research Center survey on free trade found that 58 percent of Americans believed that trade agreements were good for the U.S., while 33 percent held the opposite view. The study also revealed that 43 percent of Americans believed that free trade had helped their families, a rise of 26 percent during the past 15 years. Supporters of free trade by political party were broken down in the following manner: 62 percent of Independents, 58 percent of Democrats and 53 percent of Republicans. By age, 69 percent of those below 30, and 51 percent older than 50, believed that free trade has been a positive factor for the U.S.

In February 2016, a Gallup poll was released again revealing that 58 percent of Americans see trade and exports as an economic growth opportunity. Approximately 34 percent see trade as an economic threat. By political affiliation, 63 percent of Independents and Democrats view trade positively, up from 61 percent in a 2015 Gallup poll. Approximately half of Republicans view trade favorably. Education is a factor in being a supporter of trade, with more educated Americans being pro trade versus those with little or no higher education.

However, during the current U.S. presidential campaign, free trade is being vilified by top candidates in both the Republican and Democratic parties. Republican candidate Donald Trump is stating that he would roll back free trade by imposing tariffs, not only on foreign products imported into the U.S., but on U.S. companies offshoring some of their production. Democrat Bernie Sanders has used an anti-free trade stance to cater to Americans who are struggling economically. These two hardline anti-trade proponents are influencing Hillary Clinton, a former free trade supporter, to retract her position on issues such as the proposed Trans-Pacific Partnership and the North American Free Trade Agreement (NAFTA), which her husband President Bill Clinton shepherded through Congress during his first term – thus making people wonder where she really stands.

Free trade is a complicated subject that cannot be viewed in simple black-and-white terms. Trade agreements can create new jobs and destroy jobs in the most vulnerable industries that are not able to compete in the world market. Many of these weaker industries would have eventually succumbed to competition, because of market forces, as opposed to free trade agreements.

Americans demand quality products at economical prices. This is how most of us have been able to afford creature comforts over the years such as automobiles, DVD players, flat-screen TVs, and a plethora of fruits in the wintertime. The components of these products are made throughout the world where the cost of production, skilled labor, and logistical advantages make sense. This means that a car might have its windshield manufactured in Canada, its engine block in Mexico, its metal in China, and its electronics in the U.S. If the entire car was forced to be produced in the U.S., many of us could not afford one. Most economists agree that economical products have allowed our standard of living to rise.

The majority of free trade agreements the U.S. has executed within the past 25 years are basic tariff and non-tariff barrier reduction agreements, meaning that they are aimed at removing barriers that restrict the free movement of products and services between countries. They are not focused on allowing U.S. companies to set up in foreign countries to manufacture a product that is then sent back to the U.S. Popular offshore production zones such as China, Taiwan, South Korea, and Mexico allowed foreign companies to invest and operate on their soil long before they joined the World Trade Organization or formed any type of a trade arrangement with the U.S. Countries work to attract foreign investors to set up production operations, purchase local supplies and employ their citizens.

A lot of people mistakenly assume that in 1994 NAFTA was structured to allow U.S. companies to more easily produce their products in Mexico. In reality, U.S. companies such as Ford, GM, and Delphi Automotive were manufacturing their products in Mexico long before NAFTA came into effect. However, one clause of NAFTA was negotiated to allow U.S. firms to enter previously restricted Mexican markets such as banking and insurance services.

Most Americans want stability, especially when it comes to their careers. The ability for one to learn a trade or skill and be secure in lifetime employment no longer exists. Demand drives markets and demand can be fickle, changing very rapidly. Companies that are doing well supplying products for their markets might have new competitors that are more cost-advantageous and efficient, or appear overnight. Demand in the market might shift to products that require an expertise or capability that the company doesn’t have. If a company is not flexible in being able to adjust its production, suppliers, or workforce, it will struggle to survive.

The rise in support for free trade came as the Iron Curtain imploded and former socialist economies bought into capitalism. If anything, anti-trade proponents should berate the Reagan, Bush, and Clinton administrations for pursuing tactics to promote U.S.-style democracy and capitalism throughout the world. Free trade is the eternal scapegoat for politicians who need to raise the ire of disaffected voters during campaigns. After the elections are over, the winner will have to reconcile the rhetoric with reality.