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18/10/2017

The free-trade fiction

  • Democracia Participativa
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Economists wouldn't waste their time discussing whether free trade is good or bad. It is clear for all economic theories that free trade has many benefits and very few drawbacks. The problem is not hidden in convoluted economic policies but in dishonest politics, turning the free-trade concept into pure fiction. Many countries (and China is outstanding among them) take advantage of the free trade offered by other countries while inserting political decisions in detriment of their trade partners. Trade agreements with countries like China imply agreeing to a poker game where the other player knows your cards in advance but do not display its own cards until having a winning set. Not even US allied Japan is free of guilt. Currency manipulation is among the most damaging tricks used to take unfair advantage of free trade. That way, free trade is not so free.

Chinese Currency Manipulation Could Become A Global Problem in 2017

What’s the point of free-trade deals if governments can wipe out the benefits with monetary maneuvers? 

by Judy Shelton 

New York, Feb.13.─ Passionate defenders of the “global rules-based trading system” should be wary of thinking their views are more informed than President Trump’s. He has been branded a protectionist and thus many conclude he is incapable of exercising world leadership. Meanwhile, those who embrace the virtues of global free trade disregard the fact that the “rules” are not working for many American workers and companies.

Certainly the rules regarding international exchange-rate arrangements are not working. 

Monetary integrity was the key to making Bretton Woods institutions work when they were created after World War II to prevent future breakdowns in world order due to trade. The international monetary system, devised in 1944, was based on fixed exchange rates linked to a gold-convertible dollar.

No such system exists today. And no real leader can aspire to champion both the logic and the morality of free trade without confronting the practice that undermines both: currency manipulation.

When governments manipulate exchange rates to affect currency markets, they undermine the honest efforts of countries that wish to compete fairly in the global marketplace. Supply and demand are distorted by artificial prices conveyed through contrived exchange rates. Businesses fail as legitimately earned profits become currency losses.

It is no wonder that appeals to free trade prompt cynicism among those who realize the game is rigged against them. Opposing the Trans-Pacific Partnership in June 2015, Rep. Debbie Dingell (D., Mich.) explained: “We can compete with anybody in the world. We build the best product. But we can’t compete with the Bank of Japan or the Japanese government.”

In other words, central banks provide useful cover for currency manipulation ...

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