The Negative Impact of Free Trade
Free trade is a policy that is destructive to the American middle class. While some U.S. workers will or already have lost their jobs to outsourcing, 70 percent of all U.S. wage earners will see downward pressure on their wages, according to the Economic Policy Institute (EPI), as domestic companies struggle to compete with dumping from multinational corporations. The annual cost of free trade to the median American family now exceeds their annual income tax bill, and projections show that in the next 10 years free trade will eliminate all wage gains made by workers without a four-year degree since 1979. Ultimately, free trade only benefits the wealthiest corporations and the individuals that own them. It squeezes more work for less pay from the rest of society.
Identification
Free trade is a term used for agreements between nations to lower or abolish trade barriers on imports. What this means is that countries who sign on to free trade agreements pledge not to assess tariffs on incoming goods from other participant countries. The North American Free Trade Agreement, or NAFTA, was signed by U.S. President Bill Clinton on Dec. 8, 1993. It remains the operative free trade agreement between Canada, the United States and Mexico. It is the largest such agreement in the world in terms of the purchasing power of the signatories.
Significance
As the EPI describes it, the beneficial impact of free trade agreements is primarily enjoyed by multinational corporations. These are companies that look for the cheapest possible input costs, including labor and materials, wherever they can be found around the world. They then use free trade agreements to further reduce their costs by eliminating the tariffs they would otherwise have to pay when importing finished products into the United States. Meanwhile, the laborers in foreign countries who give up their indigenous ways of live for extremely low wages, do not receive the same labor protections U.S. workers would receive and do not get a share of the profit for the exploitation of their work and natural resources by foreign corporations.
Effects
The negative impacts of free trade are felt by laborers and small businesses that cannot take advantage of lower input prices in other countries. In the first 10 years of NAFTA, production that used to take place in the U.S., and which supported 879,280 U.S. jobs, moved to Mexico where labor costs are lower. Between 1994 to 2007, a period which includes the initiation or expansion of several additional free trade agreements, net manufacturing employment in the U.S. declined by 3,654,000. Though total U.S. exports to NAFTA countries has increased, imports from these countries (the result of dumping in U.S. markets) overwhelmingly surpasses export growth to the tune of an $85 billion trade deficit in 2002 alone, and job losses in all 50 states and the District of Columbia.
Considerations
But the outsourcing of jobs is not the only negative effect of free trade. Companies that don't cut their costs by outsourcing are forced to compete in local markets with those who do, and who therefore can offer goods at much lower prices. This is a phenomenon called dumping, where cheap goods from another company flood local markets driving out local producers who don't have the benefit of inexpensive foreign inputs. Dumping works both ways. Because corn production is heavily subsidized by the U.S. government, corn farmers in Mexico have been devastated by the dumping of cheap U.S. corn in their local markets.
Potential
Free trade agreements continue to be presented to the American public as plans that will increase U.S. wages and create jobs. Proponents of free trade say that unrestricted access to global markets and elimination of national boundaries create domestic jobs. The increased profits to multinational corporations exploiting cheap foreign resources and labor are said to raise the living standards of middle-class Americans. However, many high-paid jobs are replaced with much lower paying jobs, offsetting any standard of living increase realized by the proliferation of low-cost imported goods for many workers. A December 2008 Gallup poll showed that 53 percent of Americans view NAFTA negatively.
