Stop Being Dumb & Partisan on So-Called 'Free Trade'

In recent days, President Barack Obama and much of the Democratic establishment have doubled down in support of the TPP, especially in light of Donald Trump's measured speech yesterday about his plan to cut taxes and renegotiate America's trade deals.

But it's time to get something straight, this isn't a partisan issue.

So-called free trade is bad for the American middle class, and it has been ever since Ronald Reagan, the Republican savior himself, declared that "Almost all responsible economist, … are unanimous. They agree that free and fair trade brings growth and opportunity and creates jobs. And they warn that high trade barriers, what is often called protectionism, undermines economic growth and destroys jobs. I don't call it protectionism; I call it destructionism.".

It's been just over 30 years since Reagan proclaimed that, and every president since then has followed the religious belief that so-called "free trade" will save us all.

And 30 years later, it's pretty clear that Reagan was dead wrong about trade, and so are the Democrats today who are saying the same thing.

The fact is, sweeping trade deals like NAFTA, the TPP, and the Transatlantic Trade and Investment Partnership only benefit the CEOs of the corporations that are at the negotiating table.

Democratic proponents of so-called free trade make it seem like the options are either antiquated tariff-based protectionism or forward-thinking globalist "free trade" deals.

But Democrats have historically been the party that opposes these sort of sweeping corporate-managed trade deals and supports the kind of tariff based, or VAT tax based, trade that made America the most powerful manufacturing powerhouse that the world had ever seen.

The truth is, the only way that countries can really benefit through trade is if the two countries have different resources or different specialties, what economist David Ricardo called "comparative advantage".

For example, the soils in France are well-suited for growing grapes for wine, and the soils in Scotland are better for growing barley and wheat.

By applying human labor to fields and grapes and grains, both countries would have used their comparative advantage, their soil and climate, to produce a product to trade with that benefits citizens of both nations. Everybody in both countries can eat bread with their wine.

But what happens if France starts growing wheat in a big way, in addition to making wine? What happens if they can grow it cheaper than Scotland? In a 'free trade" scenario, that would lead to Scottish farmers getting wiped out by French wheat exports, which could then lead to hungry, poor Scots fleeing Scotland for the relatively more prosperous France, producing a challenge for both nations.

And that is, by the way, virtually exactly what happened when Mexico and the US signed NAFTA and US corn growers began selling super-cheap corn into Mexico where small, subsistence-level farmers were previously the major source for that staple in the Mexican economy. Our cheaper corn put over a million Mexican farmers out of work, driving some into the slums of Mexico City, and others across the border into the US in search of work.

It seems like a deal that would advantage one country and screw another, and, interestingly, that's exactly what "free trade" was originally designed to do.

King Henry VII's "Tudor Plan" of 1485 did that, by placing high tariffs, taxes, on the export of raw wool and on the import of finished woolen products, he discouraged the export of wool and encouraged the manufacture of fine woolen goods in the UK.

South Korea is a modern example of the impacts of such tariff-based trade policies. In 1960, their average annual income was under $700 a year, about that of Kenya, and that very poor nation's major exports were fish and human hair for wigs.

The Korean company Samsung started out exporting fish, fruits and vegetables, but in 1961 General Park Chung-hee embraced tariff based trade to protect the fledgling Korean economy from being exploited under so-called "free trade".

With high export tariffs on raw materials and high import tariffs on manufactured goods like cars and electronics, South Korea was able to incentivize their fledgling manufacturing industries and quickly develop domestic plants to manufacture electronics, machinery and chemicals.

As a result for South Korean citizens, per-capita income grew more than five times in just the 7 years between 1972 and 1979.

It worked here, too, only we started it in 1793.

For essentially 180 years, from the time that Alexander Hamilton laid out his 11-point Plan for "American Manufactures" that called for tariffs, until the time that Reagan began dropping our tariffs and "liberalized" America's trade policies, our country led the world in manufacturing and prosperity because of our tariff-based trade system and our support for domestic industries.

While today "tariffs" have become a dirty word, our trading partners use VAT taxes, Value-Added Taxes, instead of tariffs, with the same effect as tariffs.

The VAT tax in Germany for example is 19%, so when an American automaker wants to sell a car to a German, there is a 19% value added tax added onto its price by the German government, effectively a 19% import tariff. And when a German-manufactured car is sold to an American in the USA, Germany drops the price of the car by that same 19%, essentially adding on a 19% export subsidy.

German consumers are encouraged to buy German made cars, because an imported car that cost $25,000 to manufacture would be sold in Germany for $29,750, effectively acting like a "protectionist" import tariff.

It also makes German cars relatively more affordable on foreign markets, effectively acting like a "protectionist" export subsidy.

Germany is not alone in this. Japan, South Korea, China, Taiwan, and most European nations do the same thing. The only developed country without a VAT tax to use as an effective tariff is the USA - we've become the international village idiots. Nothing protects our workers or manufacturers, which is just fine with the big transnational corporations making billions exporting our jobs.

Leading Democrats, including President Barack Obama, should stop falsely claiming that globalist so-called "free trade" is the only way of the future while slurring progressives (and many conservatives) by calling them "protectionists" who want to "turn back the clock".

So-called "free trade" isn't the way of the future, it's a broken model that global elites have pushed since Reagan, and it's forced tens of thousands of US factories to close and cost millions of Americans their good paying jobs.

If we want to grow the American middle class and create a prosperous country again, it's time to reject the TPP and withdraw from NAFTA, CAFTA, the WTO and the rest of our insane so-called trade deals, and it's time to take a page from our trading partners and implement a VAT tax (or return to tariffs) to make American-made goods cost competitive and bring about an American manufacturing renaissance.

Comments

The Glenn Beck Review's picture
The Glenn Beck ... 2 years 18 weeks ago
#1

Hillary Clinton says she's against the TPP. If you believe that, then you don't understand she will say anything to get elected. This "free-trade agreement" is a Trojan horse for corporatization of our government, the 9th characteristic of fascism on steroids.

The TPP is the name of the first knife she will use to stab her middle class supporters in the back. This prospect makes her more dangerous than Trump.

#BoycottClintonTrump: vote Green, the only sane choice left. #JillOrBust

Kenluskin's picture
Kenluskin 2 years 18 weeks ago
#2

When the Wall St. Urinal agrees with Thom Hartmann, you know the issue is a no brainer http://www.wsj.com/articles/how-to-revitalize-u-s-manufacturing-1465351501

"A similar idea for lowering the trade deficit is imposing a value-added tax. The tax, which is used by more than 130 countries, is applied to each step along a production chain as a product or material increases in value or is consumed. How does this help domestic manufacturing? Almost all countries with VATs waive them on exports but impose them on imports, at an average rate of about 17%.

“Right now we’re the sucker, because everybody else is charging the tax on [U.S.-made goods] coming into their countries, but we don’t charge it on their stuff coming to the U.S.,” says Harry Moser, president of the Reshoring Initiative. He figures a 17% tax on $2 trillion a year of imports could generate more than $300 billion a year in revenue. And a VAT would make imports more expensive, boosting the appeal of U.S.-made goods with consumers."

"The rap on VAT, as with state sales taxes, is that it’s a regressive tax on essential, everyday items, like clothing, that every buyer faces regardless of their ability to pay. The upside: A VAT would put the U.S. on the same kind of tax system used throughout the rest of the world. In theory, that would make our exports more attractively priced because they wouldn’t be taxed twice—once in the U.S., as they are now, and then when they enter other countries."

KEY: ""A VAT would need to be coupled with an elimination or reduction of existing taxes on businesses, including payroll taxes for Social Security and Medicare. Likewise, consumers would need tax relief to make up for the higher prices they would face for most purchases."

M J Pipkin's picture
M J Pipkin 2 years 18 weeks ago
#3

Is the below correct?

Let's be very clear about the taxing. The explanation about the German VAT needs to be made crystal clear: From what you have written, Tom, here is what I understand:

For example: a car made in the U.S. is shipped to Germany. A 19% tax is tacked onto the American price which the German consumer must pay.

A German made car shipped to the U.S. has a 19% discount put on it, so the American pays 19% lower for it than would a buyer in Germany.

2950-10K's picture
2950-10K 2 years 18 weeks ago
#4

Teapublic party voters hate free trade and refer to the TPP as Obama Trade, yet they still vote for the party that is owned and controlled by the private sector elites/fascists behind all of these trade deals. Hell, they even believe Dangerous Don when he lies to them about his stance on free trade.

McConnell, the Teapublic Senate leader has even blocked Democratic Party legislation that would have ended outsourcing tax breaks. Both McConnell and Paul Ryan who is currently the second most dangerous man on the planet, were tickled pink when the fast-track authority sought by Obama got passed. Just for the record, in the House vote, "218 to 208," only 28 Dems voted for it.

Based on all of these facts, it would seem the Teabaggers live in upside down Fox world....the blood has all flowed away from their brains for sure.

Queenbeethatsme's picture
Queenbeethatsme 2 years 18 weeks ago
#5

Excellent commentary Thom, and spot on.

Intermittent Instigator's picture
Intermittent In... 2 years 18 weeks ago
#6

"But it's time to get something straight, this isn't a partisan issue."

Go Green!

Maize (my people call it "corn") and blue, properly blended: Green.

Legend 2 years 18 weeks ago
#7

How often do you hear our 1% owned news media educating the public on TPP news? It will be passed during the lame duck session after the election. Then Hilary or (God help us) Trump will not take the blame. Suggest writing to the POTUS and Congress but they do not listen. The next 4 years are going to be terrible, but in 2 years from now we start another POTUS election if we make it that far.

Greg Kramer's picture
Greg Kramer 2 years 18 weeks ago
#8

I suggest anyone that wants to know about trade flows and its affects on GDP read Michael Pettis' book, The Great Rebalancing. Mr. Pettis in arcane free language that anyone with modicum of understanding how GDP is calculated describes savings, investment, wage, productivity, import tariffs, export tariffs, currency manipulation, exports, imports and how they affect a country and their trading partners GDP, respectively.

As much as I respect Thom, he doesn't know as much as Mr. Pettis on the ramifications of trade flows. The former is an articulate, educated and well versed person that has an eclectic background and Mr. Pettis is an expert on how trade flows between countries in a closed economy (the world).

Mr. Pettis is not an advocate of "free trade" either so liberals keep your diatribes in check.

Thom's advocacy of a VAT, imporverishes household consumption, which will cause an increase in savings, which will also further impoverish most households unless the government that receives this additional revenue also spends or incentivizes that money on investing in the real economy thereby increasing production and output and/or provides subsidies to those impacted by the reduction in household income so it in effect ameliorates or entirely subsidizes the affected household's impoverishment.

In short, institututing a VAT without corresponding measures to take into account those increased taxes will only hurt household consumption thereby exacerbating the income and wealth gap.

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