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How Trade Wars Shaped Early America, Part 1

By: Dr. A. H. Krieg | Libertarians are most usually people who represent a somewhat confused idea on issues of trade based on their absolute liberal philosophy. We don’t really disagree with much of that, but Mr. Bovard seems to us not to understand the basic concepts of free markets. He begins his article with an attack on “Fair Trade” which he allies to the political “Left”. Then goes on to say that the “Left” is desirous of implementing trade restrictions, i.e. protectionist trade policies. Fair trade has always been a nationalist topic, and is not of the political left, and trade issues are not as simplistic as free or fair trade.

Fair Trade is in fact not of the political left but from the Nationalist political norm. Regardless of what Mr. Bovard seems to postulate on trade we strongly suggest letting the facts speak for themselves, rather than a discussion of labor costs in various economies.

Past history relating to trade is in basis irrelevant because means of production worldwide have drastically changed since the latter part of the 20th century. The international consolidation of manufacture as multinational in nature is the cause of this.

Firstly it is important to understand the reality of 21st century manufacture. Facts are indisputable, and they in part consist of the reality that in this time all manufacturing is done on similar machinery regardless of the geographic region in which it takes place. The cause of this is, that today most manufacture is carried out by multinational corporations, whose only interests lie in producing whatever product they make at the lowest possible cost, and to sell it in the world economy at the highest possible profit. This reality causes five factors to come into play for American producers. 1) The cost of labor (A) and 2) the cost of government regulatory burden, (B) and 3) the price of taxes in the manufacturing location. (D) Lastly 4) in the case of America Tort law (5) which ads about 15% to the cost of manufacturing in America. (C) Libertarians conveniently forget these issues in order to advance their political philosophy.

I will produce only one international issue to support my case that Mr. Bovard is completely wrong. Beginning in the late 70’s the progressives and their allies the Libertarians began arduously pushing “Free Trade” as an American policy relating to international trade. I will not even bother to list all the false claims made on behalf of the issue, and restrict myself to the eventual outcome with only one nation, Mexico.

NAFTA[1] was proposed to the DEC[2] in the late 80’s. By 1990 it was solidified within the political parties enjoying by-partisan support. It was and always has been opposed by over 85% of the general population. This is why it was passed as an agreement and not a treaty. Enacted in 1992 with considerable opposition within the many DEC’s it took effect in 92. The agreement is written in two books 8 ½ by 11 inches single spaced with pages unnumbered the first is 1½ inches thick the other 1¼ inches thick. So it consist of over 1,000 pages and what it states is: NAFTA is an agreement between Canada, Mexico and the United States and shall reduce all tariffs to 0 in ten years at the rate of 10% per tariff per year. That in effect is all that the over 1,000 pages boils down to. This poses only one question; how have we done with NAFTA? In 1992 America had a $5.7 billion trade surplus with Mexico, over the coming 10 years that rapidly changed to a deficit topping out to $62.6 billion in the tenth year. Over the total time of the ten years America lost $ 548 billion.

The really serious effects of this free trade agreement did not come to fruition until the third year. NAFTA requires that the USDC provide an annual report of NAFTA at the end of each year. When president Regan read the 3rd year report he ordered it shredded, and every American president since has ordered the reports not to be published. We know exactly why. The third year report stated that America was rapidly losing manufacturing capacity with plant closings and many moving to Mexico. This rapidly accelerated. By 2014 we have lost 11.7 million manufacturing jobs and 56,000 small manufacturing enterprises. American middle class income began to stagnate and in the last decade years has steadily fallen. The great promise that the consumers good would become less expensive was an illusion, today the goods are more expensive, mostly made overseas or in Mexico, and the worker now employed in flipping hamburgers at minimum wage rather than in manufacture earing four times more, getting less and spending less.

  1. North American Free Trade Agreement
  2. District Export Councils of the USDC (there are about 40 of these in America most have about 14 to 18 members.)
    1. Cost of labor: USA is 100. Norway, Switzerland, Belgium, Denmark, Germany, Austria, Finland, Holland, France, Iceland, Canada, Italy and Japan are from 181 to 101 above all others are below. Multinationals only manufacture consumer goods is special cases in those nations. In the case of large items (cars, tractors, boats etc.) most parts are subcontracted to third world nations. (BLS)
    2. Cost of government regulation USA is now at $62 billion annually and that is new regulations for 2014 alone. (OMB) (SBA) lists it at $1.7 trillion annually. While the EU has larger regulatory burden placed on manufacture we are rapidly overtaking the EU under Obama’s regulatory expansion.
    3. American tort law is the bane of all manufacture the average cost of product liability insurance in America is between 10 and 15% of the production cost.
    4. America has the highest corporate tax rate in the industrialized world.

Dr. Krieg is a doctor in manufacturing science and is a certified manufacturing engineer (SME) He was an advisor to the US Department of Commerce for 15 years under various administrations, from 1982 to 1995.

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