Discourse of the Day, It's the Economy Stupid

It’s the Economy Stupid- Free Trade Agreements

The recent wave of economic nationalism to sweep across the world is a direct backlash against the forces of globalization that have been on the march since the fall of the soviet union. Nothing more epitomizes the globalization movement than negotiated Free Trade Agreements. From the Pan-Pacific Partnership to NAFTA, free trade agreements have been held up as the source of America’s economic woes by economic populists. With such a vehement contempt for these kinds of agreement saturating our national discourse I thought they warranted a closer look.
First brass tacks, what exactly is a free trade agreement or FTA for short. Well while there is no one-size fits all framework that encompasses every FTA out there at its core an FTA is an economic agreement entered into by two or more countries that aims to promote trade between its members by reducing or eliminating trade barriers such as import quotas or tariffs. With no artificial barriers in place, the market adjusts so that each region focuses on the industries where the poses a comparative advantage; increasing productivity and overall economic output. Costs are cut, markets are expanded, capital moves freely between nations.
Pretty simple right? And if the overall economy is better then everyone benefits. Well, not so fast. While no reputable economist will debate the validity of the notion that FTAs create wealth for their member nations there are no guarantees as to how that wealth is distributed.
Often times developing nations lack a true comparative advantage in resources and skilled labor. But they do have an advantage in unskilled labor. One which they leverage for further gain by cutting wages and furnishing sub-standard work environments in order to cut costs. This is problematic on two fronts. The first is that these low-cost laborers become stuck in low-wage jobs with no hope for advancement, no chance to unionize, and with a very poor standard of living. Meanwhile, the labor-intensive (especially manufacturing) blue-collar jobs disappear from developed nations creating a wave of unemployed unskilled labor dependent on government assistance for re-training or unemployment. All this while factory owners and corporations reap the benefits of reduced costs. While free-trade isn’t slowly responsible for Income Inequality it certainly has increased the income gap in almost every nation that participates in one of these arraignments. (I’ll talk about Income Inequality and its consequences in another post). These agreements often have a negative effect on the environment for the same reasons. In attempting to cut costs companies often circumvent or outright ignore international environmental protections.
The truth is FTAs aren’t inherently bad. But FTAs between developed and developing nations tend not to work because the nations begin the agreement on an uneven footing that is only exacerbated by the free flow of capital and the looser legal regulations of the third world. While the theory is that these agreements will help pull these developing nations up to the living standards of the developed world in actuality they only serve to codify the legacy of economic exploitation established in the colonial era.

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