An Economist Rethinks Free Trade
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A belief in free trade is part of being an economist, and a belief in America's competitiveness is part of the economist's commitment to the global economy.

Economists note that no other country has the depth and breadth of our capital markets, political stability, rule of law protecting contracts and property rights, strong currency, and accumulation of scientific and technological knowledge that makes the U.S. the high tech leader.

All of this stability and leadership causes foreigners to send their money here for safe haven and secure investments. The inflow of money keeps the dollar strong, which encourages imports from abroad and a trade deficit year after year after year.

These arguments are reassuring and make sense. Still it comes as something of a shock to discover that the U.S., the world's high tech leader, has the export profile of a 19th century third world colony.

Twenty years ago when I was a U.S. Treasury official, the U.S. trade deficit came mainly from oil imports. Today our trade deficit is driven by imports of energy, consumer goods, and manufactured goods.

A table prepared by MBG Information Services in Washington, D.C., from U.S. Dept. of Commerce data, shows the U.S. trade balance for 85 separate industrial and commodity classifications. The only high tech goods of which the U.S. is a net exporter are airplanes and airplane parts, military technology and specialized machine tools. In 2000 the U.S. was a net importer even of spacecraft.

What does the high tech U.S. economy export? Are you ready for this? Hides and skins, metal ores and scrap, pulp and waste paper, tobacco and cigarettes, rice, cotton, coal, meat, wheat, gold, animal feeds, soybeans and corn.

We can't even make our own clothes. Clothing is the third largest contributor to our trade deficit, after vehicles and crude oil.

Even our agricultural exports are declining as the "green revolution" takes hold abroad and U.S. farming shuts down.

The case for free trade rests on comparative advantage. Each country is supposed to specialize in what it does best. Where does the U.S. have a comparative advantage? Apparently, our comparative advantage lies in a political system that doesn't mind if foreigners buy up our assets.

Very little of the foreign money flowing into the U.S. is for the purpose of building Toyota and BMW plants. Eighty to eighty-five percent of direct investment by foreigners in the U.S. economy goes into mergers and acquisitions. In 2000, 97 percent of direct investment by foreigners went for the purchase of existing U.S. Assets.

We are not only losing industrial jobs, we are losing ownership of our companies.

This is bad news for Americans training for engineering and high tech occupations. The jobs are moving out. Recently, Motorola announced the company was moving more of its manufacturing and research and development jobs to China.

The jobs that remain in the U.S. are being filled with engineers imported from India at half the salary.

As capital and technology are now completely mobile, the only comparative advantage lies in labor costs. Companies are chasing the lowest labor costs. For awhile, the move was to Mexico, but before Mexico could get on its feet, the move shifted to China.

Propagandists call the move to China "free trade" and "globalization." But the Chinese don't see it that way. They say, "you can't sell here unless you produce here." That's blackmail, not free trade.

Few companies are making money in China, but the hype is that with 1.5 billion consumers China is the market of the future. If it doesn't work out that way, equity shares will suffer another pricked bubble.

The U.S. is on its way to becoming a country whose corporations are foreign-owned and foreign-based. The U.S. will decline as a consumer market as there will be no high productivity jobs to support consumer demand.

The U.S. is importing a new population that will help it on its way to third worldism. Every year millions of poor and uneducated immigrants, both legal and illegal, pour into the U.S. from alien lands that have never been part of the rational scientific culture of the West. Today 20 percent of the U.S. population is foreign born or children of foreign born.

This massive influx drives up the demand for income support programs while driving down the taxable wages in retail and service sector jobs, where Americans are forced to seek employment as higher paying automotive, electronic, textile and manufacturing jobs leave the country.

The U.S. is still a superpower, but it is a country with very little, if any, control over its future and its destiny, a country whose time is running out.

Paul Craig Roberts is the author of The Tyranny of Good Intentions : How Prosecutors and Bureaucrats Are Trampling the Constitution in the Name of Justice.


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