The Myth of Free Trade

Special to the Star-Telegram

Elected officials support many enduring myths that sound not just good but economically reasonable. They oversimplify them in business logic that helps America’s financial future sound potentially exciting. Once you get past the ostensible intelligence of the sales pitch, though, the facts of the real world intrude. That they are myths may be scarier than anything in Grimm’s Fairy Tales, but they are – equally fanciful tales.

The first is the myth of free trade.

Its logic is that the world’s nations trade with each other and all grow rich together. In real life, it doesn’t work that way; one nation usually grows richer at its trading partners’ expense. It doesn’t have to be that way, but it is. Moreover, in the future more lopsided trade seems likely, because of Detroit’s current problems – as we’ll see.

Protecting Profits, Not People

A great first example of how America preaches but doesn’t practice real free trade is ethanol. Currently we give American ethanol blenders a 46-cent-per-gallon direct tax credit, which starves our treasury of badly needed funds despite the nation’s record government deficits. Yet we place a 54-cent-per-gallon tariff on cheap Brazilian ethanol to ensure that nobody will import it. This protects our much less efficient and, frankly, foolish practice of converting food into fuel. Subsidizing our ethanol industry with large tax credits while punishing foreign makers of efficient, importable ethanol is restraint of trade in anybody’s book.

Second example. Remember when it was big news how many American senior citizens were traveling into Canada to fill their prescriptions? In Canada they could buy their prescription drugs at incredible discounts, both because of the exchange rate and because the Canadian government negotiates lower costs on those drugs in its citizens’ behalf.

Many of our elderly simply couldn’t afford to buy those life-saving drugs in the States. And you’d think Americans would have every right to shop in Canada for cheaper drugs: NAFTA was sold to us as enabling total free trade between us, Canada and Mexico. Yet, as far as Washington was concerned, old folks could go to Whistler, Canada, and purchase ski gear all they wanted – but don’t even try to cross the border for cheaper drugs that was proving to save lives.

Cross-border selling is taboo for automobiles, too – although it’s this industry’s manufacturers, not the Feds, whose policies prevent buyers from saving any money that way. In most years, buying a car in the United States can save a Canadian thousands of dollars, not incidentally helping to balance trade between the two countries. But car manufacturers refuse to honor a warranty in Canada if the car was sold in the U.S., even if the automobile was built in Canada and shipped south to begin with.

China Protects Its Own

And then there’s China, where over the past 30 years many American manufacturers have enjoyed great success in selling their product. American Motors first set up Beijing Jeep in China in 1984, where they produced the Cherokee model for that market. Jeep production continued after Chrysler bought the company in the late eighties, and in the mid-nineties China invited Chrysler to build minivans in China too. In the end, then-CEO Bob Eaton said no; the deal-breaker was letting China use Chrysler’s minivan tooling and dies. Seems the Chinese wanted to give a competitor the ability to build perfect copies of that vehicle. That would have forced down the minivan’s price, even though Chrysler alone would pay the costs of setting up production there.

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