Free trade vs. tariffs = capital vs. labor
But they shouldn’t.
International conflicts among nations involving tariffs are based less on nations wanting to get the best deal for themselves — and more about the conflicts between capital and labor within each nation.
In “The Global Class War,” Jeff Faux documented the obvious: negotiators of international trade deals since NAFTA have represented each nation’s corporations and investors, and opposed protections of workers and the environment. In effect, they gave corporations in each trading nation the right to use the cheapest labor in either nation.
Although this kind of trade resulted in cheaper products and services for the world’s citizens, corporations and investors were the big winners. Labor and the environment were the big losers.
There have always been capital/labor conflicts within nations, but they got far more destructive after the world’s wealthy began the global class war. The resulting disintegration of middle classes and growing disparities between rich and poor has led to populist revolutions — so far mostly peaceful — throughout the world.
Those revolutions gained the attention of political leaders, both legitimate and demagogic who claimed they would make corrective changes.
What kind of changes? Demagogues like Donald Trump correctly recognized the problem and gained support from workers in the rust belt by saying the NAFTA was a disaster for workers. However, he didn’t have a clue about how to change it. His vague promises of reform focused more on generic “foreigners” rather than on specific re-negotiations of trade agreements that made sense.
He saw tariffs as a way to punish other countries that had taken unfair advantage of us, or that had pursued policies that he didn’t like. Creating a tariff war like that only results in retaliation — destructive tariffs designed, not so much to protect essential industries, but to punish the U.S. in return.
Tariffs make sense only when negotiators of nations commit themselves to trade on the basis of legitimate economic reasons — not on cheap labor. Negotiators’ objective should not be to give one nation an advantage over another, but to trade for the mutual benefit of each.
It can make economic sense for a U.S. corporation to locate a manufacturing plant in Mexico if it is in the center of a distribution area, or near a source of raw materials. This could benefit American investors and Mexican workers and consumers, and wouldn’t hurt American workers.
Such trade between Mexico and the U.S. makes economic sense when it’s based on each nation’s unique advantages — other than cheap labor. Of course, if we consider workers as nothing more than machines or raw materials, it makes economic sense to abandon them and relocate in Mexico to produce things for sale in the U.S. But if our workers are legitimate citizens who deserve a decent standard of living, then it doesn’t.
Another important reality is the the U.S. government can only control what’s happening within our own borders. It can try to influence how other nations treat their workers, but their government will control their own conditions. If attracting industry depends upon them keeping wages low, then that’s what they do.
The U.S. government created the greatest middle class by regulating the conditions of capital/labor interactions throughout our own nation. For example, the 1937 Fair Labor Standards Act dictated that children under sixteen couldn’t work full time jobs, the minimum wage would be twenty-nine cents and hour, and those working over forty hours a week would receive time-and-a-half for overtime.
The FLSA, and similar federal legislations, were essential to the creation of a middle class because — to a great extent — they prevented individual states from competing with each other by offering cheaper labor. But today, there is no way, other than tariffs or specific regulations, our government can prevent other nations from using cheap labor to entice our businesses from outsourcing to them.
We have to recognize that globalization has fundamentally changed economic realities worldwide, and we can’t easily go back to where we were. Changes will have to be made gradually and in consideration of how they will affect all segments of each nation. Poorly thought-out solutions, especially tariffs meant to punish, can do more harm than good, as President Trump has amply demonstrated.
It took us years to get into this complicated mess, and it’ll take years to get out of it.
Be skeptical of any politician who tells you he has a solution that will be quick, easy to understand, and painless.
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Chuck Kelly is author of “The Destructive Achiever; power and ethics in the American corporation,” “The Great Limbaugh Con, and other right-wing assaults on common sense,” and Why capitalism thrives — and how it self-destructs.”
