The history of international/global businesses exchanges includes numerous "trade barriers". These often take the form of tariffs. A tariff is a tax on imported goods that is designed to give preferential treatment to domestically produced goods. For example: American-produced widgets are sold at $10/dozen. Mexican-produced widgets are sold at $5/dozen due to lower labor and production costs. Now, all other things being equal, most American consumers are going to buy the Mexican widgets because they're half the price of the American widgets, notwithstanding pious pronouncements of "buy American". In order to retain their business, their are two main options; the first is for the American widget company to lower their prices, either by becoming more efficient, accepting a lower profit margin or by finding cheaper sources of supplies, like the metal needed to manufacture their widgets. The other is to get the government involved so that Congress imposes a $5/dozen tariff on Mexican widgets in order to preserve the American jobs. Of course, price alone isn't what motivates consumers, if the quality of the American widgets is noticeably superior, then buyers might accept a higher price. We Americans often tell ourselves that we support American jobs and that given the choice we'd buy American. But the facts suggest otherwise. Wal-Mart is a relevant example. When Wal-Mart began expanding it's business by offering groceries in its stores, there were protests all around the country, Wal-Mart was driving many local stores out of business, and people shouted at their local representatives to keep Wal-Mart out of their towns. But what happened once the Wal-Marts opened? That's right, they had no shortage of customers because Wal-Mart usually offered the lowest prices without a discernible drop in quality.
It's easy to see why the option of government intervention is more attractive. It's hard to get more productive. Push people to do more work for the same money and you'll likely lose your best employees, try to lowball your suppliers and you'll find that they have the same problems that you do and there's only so low that they'll go. So industries hire lobbyists to get their Representatives in Congress to impose tariffs. Make it more expensive for foreign-made goods and price-conscious consumers will go with the American products.
Of course we tell ourselves that it's unfair to compete with that cheap Mexican labor - and they don't have all the government regulation that we have that drives up costs, but there are other reasons for tariffs. Perhaps Canadian widgets are also $10/dozen, but are of a higher quality. With the price of both options equal, consumers will go for the higher quality. So Congress might impose a $2.50/dozen tariff on Canadian widgets in order to, once again, preserve American jobs. Sometimes tariffs are imposed to punish a country that is doing things that we don't like. Other barriers to free trade might include a ban on imports of certain products due to health or safety concerns. Other less obvious barriers could include tax incentives or government subsidies. In theory, the goal of Free Trade is a so-called level playing field for all participants, which requires eliminating barriers to trade, such as tariffs.
Of course tariffs and other barriers work two ways. While we may set up tariffs to benefit American businesses, other countries can do the same to us, blocking American businesses. If trade barriers are eliminated, we may benefit in some respects by having foreign markets open to American businesses, there will also be harmful consequences, as American companies, subject to health and safety regulations, are forced to compete with foreign companies who pay their workers much less and have significantly lower production costs. An additional harmful consequence occurs when American companies move their production facilities to other countries to take advantage of those same lower wage and production costs, in the process eliminating American jobs.
So what do we do? Should we eliminate restrictive regulations and the minimum wage and gut the remaining unions so that corporations won't decamp to other countries? Some big business owners would advocate exactly that. Some businesses would characterize the 40-hour work week and the minimum wage as restrictive, as well as basic safety requirements. Workers in these same industries are surely not interested in taking pay cuts to keep their businesses at home, nor in working in a lethal environment.
So we have a paradox. Many blue-collar workers seem to buy into the libertarian position that a government governs best that governs least. They want the government to keep its hands off their lives, yet they want the government to intervene when it benefits them. NAFTA and TPP are examples of the government not interfering - eliminating regulations to open things up. These agreements inarguably have negative aspects, but they are most definitely an example of government not interfering.
In this year's presidential campaign both candidates seem to be against free trade agreements such as NAFTA and TPP. Trump being the more vocal of the two main candidates. Much is made of a manufacturing plant closing, or layoffs, or jobs moving to Mexico or other countries. This is bad for those who are losing their jobs, but is it representative of what's happening overall in the economy? can it be attributed to free trade? Look, for example, at the Carrier plant in Illinois, relocating it's manufacturing to Mexico, resulting in the loss of many jobs in Illinois. Carrier Corporation has been demonized by Trump, who singled them out and threatened a specific tariff on that particular company if they moved to Mexico. If there was no NAFTA would Carrier have moved to Mexico? That's impossible to say for sure, but one thing is certain: companies do not continue to operate at a loss simply in order to provide jobs for their workers. In all likelihood, Carrier would have moved somewhere, and would not have jeopardized their business by continuing to lose money.
So what are political candidates, especially Trump, saying when they promise to protect American jobs? Are they saying that they will force companies to operate at a loss? That they will pile on more regulation? If so, that sounds suspiciously like socialism, which everybody seems to be against. Or how about the coal industry? Trump says that he will "bring back coal". But the coal industry isn't faltering because President Obama or anyone else is trying to "kill" it. It's losing market share to other types of energy, including natural gas, which has become very cheap due to hydraulic fracturing. Will Trump slap a high tax on natural gas in order to save the coal industry? I hear buggy whip manufacturers are staging a comeback as well.
Free trade is a complex issue. There are winners and losers, there are pros and cons. Demagoguery, however, doesn't require facts.
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