Globalisation or Not, We Like Free Trade

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Over to Bill in America…

“To hear some Democrats tell it,” begins a feature article in USA Today, “the United States is engaged in a costly, ill-advised foreign adventure that is long overdue for a change of course.

“Not the war in Iraq. Globalisation.”

According to USA Today, the election has turned globalisation into a political issue. There are those who are agin’ it…and those who are fer it.

For the record, here at The Daily Reckoning, we are neither fer it nor agin’ it. What we like is free trade, simply because we don’t like anyone telling us what to do. But someone always seems to want to tell us what to do…often the same people who are selling us ‘globalisation.’

Globalisation has been around for centuries. It comes in fits and starts, as trade routes are opened and closed. Even in pre-historic periods, people traded widely. Archeologists find beads, art, and implements often found thousands of miles from where they were made.

Later, the great empires established free trade zones in their conquered territories…often improving the quality of life – even for those of whom they’ve beaten. Empires knock down trading barriers and establish order and safety, in which people can do their business.

There’s nothing new to this.

But there’s a catch. If an empire allows lower-cost or more dynamic competitors into its trading bloc, it had better have something else up its sleeve.

Globalisation has been a big benefit to Americans, says the Peterson Institute. It adds $1 trillion to the economy each year…about $10,000 per household.

The big gains come from reduced costs, say the Institute’s experts. Asia can produce things cheaper than we can. These savings are largely passed along – by low-margin retailers such as Wal-Mart – to U.S. consumers. Wal-Mart’s everyday low prices have surely helped middle and lower class Americans increase their standards of living, even while their real incomes were steady or falling.

One of the reasons those incomes were not rising – and we are talking about a long period since the 1970s – was globalisation. It was very hard for working stiffs in the United States to make more money, when working stiffs in Asia were willing to do the same stiff work for a fraction of the price.

Jacob Hacker argues that the pain inflicted on the middle and lower classes by globalized competition is getting sharper. He claims that when a family loses a job today it tends to lose a bigger portion of its income than it did in the 1970s.

“The typical family that stumbled [in the ’70s],” explains the USA Today report, “lost 27% of its annual income. But over the last decade as globalisation moved into high gear, the income loss averaged around 40%. For a family in 2004 earning the median income of $43,200, that would mean a crippling decline of $17,280.”

Why is that? We’re only guessing…but we suppose it is because there are fewer well-paid jobs in manufacturing, so that the person who loses his job in that sector has to look elsewhere – often to clerking at Wal-Mart or flipping burgers. We suppose, too, that that is why the rich are getting richer…while everybody else is struggling. The rich get their money from capital investments and specialized careers. The poor and middle class – even white-collar workers – get their money from wages, which have to face international labor competition.

So naturally, the Democrats are breathing heavily on the globalisation issue. They pretend to represent the working stiffs. And now they’re going to pretend that the masses can keep on enjoying those ‘everyday low prices’ without yielding to wage pressure from Asia. They’re going to call for ‘fair trade,’ not free trade…and try to clamp a ball and chain on the legs of our competitors. Of course, Asia won’t let itself be hobbled with U.S. style work-rules, social security, health care, lawyers, safety and environmental regulations. Still, there may be trouble coming…and the stiffs may still be stiffed.

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
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1 Comment on "Globalisation or Not, We Like Free Trade"

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J 'Alex' Birch
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Dear Dan,
Where is the office of your publisher located ?
Do you personally operate out of Australia (& if so where )and is it possible to meet with you ?

Cheers,
Alex

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