The Danger of Free Trade Agreements

The Obama administration has been pushing major free trade agreements, including one with Korea and Colombia. Yet, for all of the discussion in the media, it is not always clear what a free trade agreement actually is and what it means for us.

Free trade is fundamentally about getting rid of tariffs or taxes on goods that are traded between countries. That may sound fair and equitable but concretely it can have a dramatic impact on a country's ability to develop an economy. Consider a country that has a very developed economy that decides to trade with a less developed country. The developed country sells manufactured goods to the less developed country and the less developed country trades agricultural items, such as cotton. The less developed country may not have sufficient technology to produce the manufactured goods, either at all or cheaply. Well, this sounds all well and good, but let's say that the less developed country wants to develop their ability to manufacture goods. As long as the less developed country is importing cheap, manufactured goods from the more developed country, it will be nearly impossible to develop their own manufacturing sector. Therefore, the less developed country may choose to impose tariffs or taxes on the imported manufactured goods so that they are more expensive and the manufacturing sector in the less developed country has a chance to grow and compete.

Sound familiar? It should, this was the basic scenario, which in addition to slavery, contributed to the U.S. Civil War. The South sold cotton to Britain and France and bought cheap manufactured goods. The North was trying to build up its own industry but could not as long as they had to compete with the cheaper goods from Europe. It was in that context that taxes were imposed on manufactured goods coming into the USA.

So, one impact of free trade carried out by developed countries like the USA is that they often undermine the ability of underdeveloped countries to create healthy, balanced economies. Instead the underdeveloped countries are often forced to rely on one or more exports, many times agricultural or mineral.

What does free trade mean in today's USA? For us it represents a changing global economy in which the transnational corporations, seeking the cheapest labor costs, and the fewest restrictions, utilize free trade as a means to not only eliminate certain taxes, but also to eliminate various laws and regulations. The North American Free Trade Agreement, for instance, inhibits governmental bodies at the state/provincial, county, and municipal levels from implementing certain environmental standards that may be judged by those who oversee the terms of NAFTA as hurting the so-called free market and harming the sale of products of one country over another.  Free trade can also mean that companies can quickly relocate to another country with relative ease, generally leaving an economic disaster in their wake.

Each time free trade agreements are passed, working people in the affected countries inevitably come up short. There are regular, rhetorical guarantees that the free trade agreement will benefit everyone, but as has been seen with NAFTA, hundreds of thousands of jobs were lost in BOTH the USA and Mexico, and in the case of Mexico, their agricultural sector has suffered catastrophically.

The next time you hear about free trade agreements you might want to put your hand on your wallet...and with the other hand, dial your elected representatives and ask them how this can possibly benefit the regular working man or woman.

 

Bill Fletcher, Jr. is a Senior Scholar with the Institute for Policy Studies, the immediate past president of TransAfrica Forum and the co-author of "Solidarity Divided."  He can be reached at [email protected].