An Economist Rethinks Free Trade

A belief in free trade
is part of being an economist, and a belief in America`s
competitiveness is part of the economist`s commitment to
the global economy.

Economists note that
no other country has the depth and breadth of our
capital markets, political stability, rule of law
protecting contracts and property rights, strong
currency, and accumulation of scientific and
technological knowledge that makes the U.S. the high
tech leader.

All of this stability
and leadership causes foreigners to send their money
here for safe haven and secure investments. The inflow
of money keeps the dollar strong, which encourages
imports from abroad and a trade deficit year after year
after year.

These arguments are
reassuring and make sense. Still it comes as something
of a shock to discover that the U.S., the world`s high
tech leader, has the export profile of a 19th century
third world colony.

Twenty years ago when
I was a
U.S. Treasury official
the U.S. trade deficit came mainly from oil imports.
Today our trade deficit is driven by imports of energy,
consumer goods, and manufactured goods.

A table prepared by MBG Information Services in
Washington, D.C., from U.S. Dept. of Commerce data, shows
the U.S. trade balance for 85 separate industrial and
commodity classifications. The only high tech goods of
which the U.S. is a net exporter are airplanes and
airplane parts, military technology and specialized
machine tools. In 2000 the U.S. was a net importer even
of spacecraft.

What does the high
tech U.S. economy export? Are you ready for this? Hides
and skins, metal ores and scrap, pulp and waste paper,
tobacco and cigarettes, rice, cotton, coal, meat, wheat,
gold, animal feeds, soybeans and corn.

We can`t even make our
own clothes. Clothing is the third largest contributor
to our trade deficit, after vehicles and crude oil.

Even our agricultural
exports are declining as the “green revolution” takes
hold abroad and U.S. farming shuts down.

The case for free
trade rests on comparative advantage. Each country is
supposed to specialize in what it does best. Where does
the U.S. have a comparative advantage? Apparently, our
comparative advantage lies in a political system that
doesn`t mind if foreigners buy up our assets.

Very little of the
foreign money flowing into the U.S. is for the purpose
of building Toyota and BMW plants. Eighty to eighty-five
percent of direct investment by foreigners in the U.S.
economy goes into mergers and acquisitions. In 2000, 97
percent of direct investment by foreigners went for the
purchase of existing U.S. Assets.

We are not only losing
industrial jobs, we are losing ownership of our

This is bad news for
Americans training for engineering and high tech
occupations. The jobs are moving out. Recently, Motorola
announced the company was moving more of its
manufacturing and research and development jobs to


The jobs that remain
in the U.S. are being filled with engineers imported
from India at half the salary.

As capital and
technology are now completely mobile, the only
comparative advantage lies in labor costs. Companies are
chasing the lowest labor costs. For awhile, the move was
to Mexico, but before Mexico could get on its feet, the
move shifted to China.

Propagandists call the
move to China “free trade” and “globalization.” But the
Chinese don`t see it that way. They say, “you can`t sell
here unless you produce here.” That`s blackmail, not
free trade.

Few companies are
making money in China, but the hype is that with 1.5
billion consumers China is the market of the future. If
it doesn`t work out that way, equity shares will suffer
another pricked bubble.

The U.S. is on its way
to becoming a country whose corporations are
foreign-owned and foreign-based. The U.S. will decline
as a consumer market as there will be no high
productivity jobs to support consumer demand.

The U.S. is importing a new population that will
help it on its way to third worldism. Every year
millions of poor and uneducated immigrants, both
legal and
illegal, pour into the U.S. from alien
lands that have never been part of the rational
scientific culture of the West. Today 20 percent of the
U.S. population is foreign born or children of foreign

This massive influx
drives up the demand for
support programs
while driving down
the taxable wages in retail and
service sector jobs, where Americans
are forced to seek employment as higher paying
automotive, electronic, textile and manufacturing jobs

leave the country.

The U.S. is still a superpower, but it is a country with very little, if
any, control over its future and its destiny, a country
whose time is running out.

Paul Craig Roberts is the author of

The Tyranny of Good Intentions : How Prosecutors and
Bureaucrats Are Trampling the Constitution in the Name
of Justice