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The Free Trade Fallacy

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Free Trade is a progressive lie, specifically designed to deindustrialize Western Nations to the advantage of the third world. In this process it enriches bankers and eliminates or impoverishes manufacturers in developed nations and destroys forwarding companies that handle international freight. In economic terms, the concept of free trade is to eliminate all trade restrictions, duties, fees and taxation so as to facilitate the free movement of goods internationally. Having been involved in import, export distribution and manufacturing for over 40-years, I bring real world experience to the discussion that has for decades been dominated by academics and politicians. During that time I ran auxiliary distribution and manufacturing companies in Zürich, Switzerland, Randburg South Africa, The British Midlands, San Leandro CA, Naugatuck CT, and a worldwide distribution network of well over 800 distributors. 

Fair Trade is the process of accountability especially for manufacturing that allows for an equation, which highlights all the specific issues of manufacture as well as the costs involved. The Free Trade progressive and libertarian concept is that; if goods are allowed across borders without restriction, consumers and manufacturers goods will become less expensive because production will automatically move to the best economic alternative, thus lowering over-all costs. This is based on a total misunderstanding of manufacturing processes as well as other issues impacting trade and manufacture. One cannot blame the academics that invented free trade due to their lack of education, except to say that it would be beneficial to all, if those making proposals about issues had at least the common sense to seek the advice of people involved in trade and manufacturing.

What Free Trade supporters do not take into account is; cost of raw materials, transport, labor, environmental regulations, social security, pensions, profit sharing, labor unions and the growth of mega-corporations like Wall-Mart, Amazon, Alibaba, Home Depot and others that circumvent the traditional distribution methods. Looking first at mega-corporations which are exclusively in distribution and subcontract all their manufacture in third world nations sources, while at the same time self-contracting all transport with house owned and controlled distribution networks. These large entities benefit by the process of eliminating all middlemen—wholesalers, exporters and importers, by direct exclusive competition contract with the manufacturer to which they often transfer Western manufacturing technology and processes. The fact that in many third world nations the governments and military are involved in manufacturing cannot be overlooked, nor can the fact that in some cases those same governments manipulate the value of their currencies in order to expand exports. (China) The organised theft of technology, know-how and means of producing is commonly practiced by China as well as India and Russia.

A manufacturer, which is in all industry the most complex part of the supply chain for goods, is faced with many problems that in large part are the product of the government under which they operate. These in America are; labor costs, workman’s compensation laws, Social Security co-payments, Environmental Protection Agency, (EPA) OSHA, product liability insurance, labor unions if applicable, energy costs impacted by EPA, SEC regulations and Labor laws. Factually federal and state regulations add immeasurable costs to the American manufacturing process and impact every element of the manufacturing process.  In large part American manufacturing is grossly over regulated, a situation that is considerably moderated in the third world, and especially in nations in which the government is also involved in the manufacturing processes.

Let's examine those questions one at a time.

The cost of labor is in almost all manufacturing the highest percentage of over-all costs. I closed my manufacturing operations in CT in 1986, at that time my average manufacturing employee was costing $32.00 per hour. In 1986 the average Mexican manufacturing worker earned $1.47 per hour and had no insurance, no social security, no workman’s comp, based on normal 30% overhead on labor the Mexican worker cost the producer $1.91 per hour total or 30.09 times less than the American worker. At this time the Mexican Maquiladora program was gearing up to full operation. The program run by the Mexican government offered American manufacturers the building of a plant in any of the Mexican states bordering America, free of charge, (rent only) with the following guarantees, fixed electric costs for the first five years, no labor unions, and government trained workers, no social security co-pays, no workman’s compensation, no OSAHA, no EPA and local police protection. Missing was a major American cost product liability insurance which is not required in Mexico because the production will be sold in America. Product liability insurance is prohibitively expensive in my manufacturing business it was $380.00 in 1964 and had risen to $38,800.00 by 1987. If there is no attachable asset in country, no lawyer will take a contingence suite because there is no attachable asset.  Consider now the further impact of the Social Security Act; the employer is forced to Quarterly pay, for each employee, the same amount deducted from the employees pay-cheque, for my company that was well over $50,000 per business quarter. Noted is the fact that the SS administration when a worker requested a report on his status omits the employers forced payment from the report—they only report ½ of the funds they collected. While my companies were never unionised (we paid better than local union contracts and had far better benefits) the teamster and AFL/CIO tried several times but my employees always voted them out. The cost of raw materials except for fuel is irrelevant in today’s world, being basically equal everywhere. In Mexico fuel (gasoline and diesel) is produced by Pemex, a state owned company that fixes prices at artificially low levels. Electricity is in the same boat.

This raises the question to proponents of free trade how does an American manufacturer compete on the free trade world stage with a manufacturing cost formula that is about 28.8 times higher than his own?

Complicating this is the change in distribution caused by the inevitable retail change from local retail outlets to Internet, Amazon and Wall Mart type outlets. These large corporations almost exclusively locate manufacturing enterprises in the third world, contract with them on exclusive arrangements and have their own in-house transport and forwarding operations, thus eliminating importers, exporters, wholesalers, freight forwarders and through this process reduce their buy price by well over 18% per item. The progressive and libertarian touted lower cost of consumer goods has yet to appear, in fact consumer prices from 19912 to 2010 have increased by 25% (FRS Minneapolis stat) but in real terms based on a basket of consumer goods and taxes 56.6% (shadow Stats)  In any realistic terms no small American manufacturer can compete with this scenario. Considering that Wall Mart offers goods almost exclusively produced in the third world, with in house delivered costs well over 40% below previous purchase price, it is easy to see why they are so successful. Free trade is a lie, it favours large business, mega retailers, and the elimination of home made product in the manufacturing field. From 1960 to 1990 which is before NAFTA and CAFTA about 80% of manufactured goods on the American market were locally produced and sold through an American distribution chain today its less than 20%.

In 1992 George H. W.  Bush signed us onto NAFTA, not exclusively his fault, it was a decidedly bi-partisan failure pushed by the banksters, a long time Bush family effort and the Business Round Table and the National Chamber of Commerce. The espoused purpose of NAFTA was: To reduce all tariffs between America, Canada and Mexico to 0 in ten years at 10% per year. I expressed that in 18 words and symbols so now as a virulent opponent of NAFTA from day one it was announced to our DEC (District Export Council [CT & RI]) a trade advisory board to the US Department of Commerce, I pose the question, why is the NAFA agreement (It was not a treaty because in 1992 Americans opposed NAFTA by over 85% so it could not have passed in the US senate) is over 1,000 unnumbered pages in two 8 ½ “ x 11” volumes with volume I being 1 ¼” thick and volume II 1” thick? Obviously the agreement contains a lot we have not been apprised of. One glaring example is the requirement of an annual report on the impact of NAFTA on the American economy. As a DEC member I saw the first report which on president Clinton’s orders were destroyed, no following president ever produced a written reveal of NAFTA’s impact on the American economy. Had the deleterious effect of NAFTA been made public the outcry from 1993 would still be reverberation in the halls of congress and it would have prevented Clinton’s CAFTA agreement that expanded NAFTA to the Caribbean basin.

This leads us to, the question. What was the outcome of NAFTA before president Trump canceled it and rewrote it? From 1992 to 2010 America lost 52,000 small manufacturing (Under 500 employees) enterprises, mine included, and 11.7-million manufacturing jobs. That is the true result of FREE TRADE!

 

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