What Is Free Trade?

Looks like the Trade Wars are about to heat up again. The Central American Free Trade Agreement, a NAFTA-esque treaty involving six developing Latin American nations and the U.S., is headed for a hell of a battle in Congress. Prepare to have esoteric economic models hurled at your head at light speed.

But there's a more significant question to consider when we talk about CAFTA. The question is this: are we really dealing with a "free trade" agreement? Or are we talking about a sham meant to benefit corporate interests under the guise of free trade?

Take NAFTA for example. After NAFTA was passed, Mexico had to do away with its grain subsidies. However, as we all know, the US retains its export subsidies. The result was that cheap grain was dumped on Mexican markets, ruining the Mexican farmer. A real free trade agreement would have eliminated both our agriculture subsidies and theirs and allowed the market to work its supposed magic. But US agribusiness dictated the terms of the agreement, and so we got an agreement that ravaged Mexican subsistence farmers, driving thousands of peasants off their lands and into the cities. The resultant migration resulted in an increase in food demand that raised prices (since less people were growing their own) and a decrease in labor costs.

Fast-forward to now. With CAFTA, we are currently refusing to eliminate our barriers to sugar imports. CAFTA is supposed to open North American markets to Central American exporters - but not if they're selling sugar, apparently. As a result, "free trade" in the strictest sense of the word will be a casualty to U.S. agribusiness interests, just as it was in NAFTA twelve years ago.

It isn't just CAFTA, and it isn't just the U.S. government, that reveals "free trade" for the political power play that it is. Governments use trade agreements to jockey for power on the world stage at the expense of pretty much everyone. Take China. China has used its government to require laborers to work hours no Western worker could possibly work. China enables its manufacturers to sell at cost - something no profit-based business could do. China represses labor agitation for better hours and more pay - unions must be approved by the Chinese government. (Not that our government doesn't have anti-labor policies, but that's another story.)

Possibly worse than all that, though, is China's egregious currency manipulation. In theory, if a nation runs a trade surplus, it would drive the value of that nation's currency up, thus encouraging more imports and less exports. But China has pegged the value of its currency to that of the U.S. dollar - the currency of a country with a massive trade deficit. The result is that China has inoculated itself against the surplus-lessening effects of currency fluctuation. Meanwhile, since much of our trade deficit is with China, it prevents us from reaping the export benefits we're supposed to reap from a devaluing currency.

And now China is threatening to lodge a grievance against us with the WTO for daring to reinstate some textile tariffs to offset the currency manipulation. Ridiculous.

Your eyes are glazed over now, so I'm going to wrap it up and open the floor for comments. My point is that "free trade" is often nothing but an illusion when governments are instating it. (The free market is a similar illusion.) We don't have any free trade now, and probably won't in the future. As a result, I have no idea what the real effects of free trade would be.