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Free Trade: Don’t let them win

Posted March 4, 2008

"If we want an economy that continues to expand and make rational, predictable moves, we must ensure that our markets are open, free and void of political manipulation. " – Andrew Snyder 

By Andrew Snyder 

Baltimore (TFN) – If you think the American economic future looks bleak right now, you will not believe what next year may hold in store. The primary elections in Texas and Ohio may prove to be a great predictor of the future. 

Lately, one of the hottest debates among the democratic candidates is the so-called need to re-tool or even eradicate the North America Free Trade Agreement (NAFTA). Sadly, Obama and Clinton agree on this issue. They both want to increase tariffs and make international trade with our neighbors more difficult. The one principle they agree on may be the worst possible. After all, without NAFTA the American economy will be much worse off. There is no questioning it.

Why pay more?

Free trade has been the heart of the American economy. Detractors believe it does nothing but erase American jobs and lower the value of American goods and services. They continue to concentrate on just one small portion of the agreements entire economic impact.

If you are a fan of making money, low inflation, and national security, you will undoubtedly see NAFTA's benefits far outweigh its negative aspects. Free trade is the core fundamental value of capitalism. Without it, the prices Americans pay for domestic products will artificially rise and inflation rates will be difficult to contain by traditional techniques. By artificially raising the price of equal- or superior-grade imports, domestic prices will rise to match.  In the end, Americans will receive lower-quality products at an increased price.

And of course, raising tariffs is never a unilateral action: As soon as the United States starts making imports more expensive, foreign, export-dependent countries will immediately reciprocate… making American-made goods less competitive in the world.

If we want an economy that continues to expand and make rational, predictable moves, we must ensure that our markets are open, free and void of political manipulation.  If we create artificial trade barriers, there is no doubt the American economy (and the jobs that it supports) will be significantly and negatively impacted.

A few jobs and a drained economy

A prime example of how Americans will be hurt by major revisions to NAFTA is the domestic car industry.  Many GM, Ford, and Chrysler parts are manufactured in Mexico and Canada.  A few presidential candidates will tell you increased trade barriers will bring many of those jobs back to the United States.  They are right.  A few thousand new jobs would be created.

But something else, much broader in scope would happen.  The cost of manufacturing those parts the cars they are destined for would rise in price.  After all, American companies have to deal with pricey healthcare, pensions, and expensive labor unions.  A tiny percentage of the population would get a cushy job, but the entire country would be forced to deal with higher prices. 

Unfortunately, the auto industry is not the only example.  Nearly all industries would be impacted.  It is something the nation's economy simply cannot tolerate.  We are already in a heap of trouble.  Now our potential leaders want to add another significant hurdle.

I say we make sure those candidates never get to show us if their rhetoric is merely empty campaign promises or they if they will make good on their word.  We need leadership that knows the true value of the American economy and what it takes to maintain our strength. 

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Posted by Andrew Snyder · Filed Under US Stocks and Markets 

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