Will the Real Free Traders
Please Stand Up

We at OCM are the free traders. The folks who claim to be “free traders” are something
else. Free trade means a level playing field for true competition among firms and industries in different countries. But today’s trade leaves American agriculture and manufacturing with tremendous disadvantages as other countries protect their industries. Our trade agreements were written by, and for, elite multinational corporations. They benefit. We don’t.

For example in 1994, China devalued its currency 40% against the U.S. dollar and has fixed it there ever since. This means all Chinese goods cost 40% less for the past 13 years. Assuming that an American manufacturer of, say, tables builds them for the same cost as a competing Chinese manufacturer, the Chinese product is 40% less cost than the domestic product. This is not capitalism, but a government determined advantage that is devastating.

If you could set up a department store business in your nearest shopping city with a 40% ongoing, government granted cost advantage, you would drive your competitors out of business. You could claim your competitors were merely inefficient, but the fact is that you started the football game with the score 40 to 0 before the first play.

Why do multinationals benefit? Because they close American plants, build behind China’s protected walls, and export cheaply to the U.S. It’s a great system to impoverish and destroy your American competitors that remained loyal to the U.S. The multinationals game the system in ways the press has not fully realized, but the CEO’s of those companies have long since figured out.

Border adjustable taxes are also a major barrier to fair trade. Most of our foreign trading partners have value-added tax (VAT) systems rather than, or in addition to, income tax systems. The VAT system is a tax on the estimated market valued added to products at each stage of manufacture or distribution. When U.S. goods enter Germany, a 17% tax is added. But when German goods are exported to the U.S. the 17% is rebated to the German company.

The economic result is a 17% cost advantage for the German exporter, and a 17% cost disadvantage for the American company selling to Germany. This border-adjustable tax aspect of the VAT system acts like both a tariff and a subsidy, but is legal under the trade laws. The U.S. eliminates tariffs, has not VAT, and we are at a tremendous disadvantage with every country.

The result is a trade deficit spiraling out of control. Warren Buffett calls it “pseudo-trade”. We bought $760 billion dollars worth of goods and services, a full 6% of gross domestic product, last year that were not reciprocated by sales. “Like a very wealthy but self-indulgent family, we peeled off a bit of what we owned in order to consume more than we produced,” said Buffett in his annual letter to Berkshire Hathaway shareholders.

Because past trade deals have performed so badly, OCM is calling for a halt to new trade agreements until a full-scale audit of these agreements is completed. When each deal negotiated produces such horrendous results, it only makes sense to stop, scratch your head, and figure out what went wrong before doing it again. After the loss of 3.2 million jobs and 40,000 manufacturers, as well as losing our food trade surplus, we are past the time to re-evaluate.

The President’s Fast Track authority (also called Trade Promotion Authority) is set to expire in June. The U.S. Constitution give Congress the power over trade, but Fast Track legislation allows the Executive Branch to negotiate trade deals, and does not allow Congress to change them. Fast Track was a bad idea under Clinton, is a bad idea under Bush, and will be a bad idea under our next President. The Executive Branch tends to “give away the store” when negotiating trade deals, and we need Congress to force discipline upon the process. OCM is vigorously opposing renewal of Fast Track, or TPA, this year.MS