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International Trade Issues of the U.S. Election

The Huffington Post logo The Huffington Post 29/03/2016 Nake M. Kamrany
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By Nake M. Kamrany, Professor, USC (ret.), Jessica Greenhaugh, Global Income Convergence Group and Maryam Qudrat, Professor, Long Beach State University.

Free international trade has come under sharp attack by presidential candidates Donald Trump and Bernie Sanders for causing billon of dollars of unfavorable trade balance, unemployment and lower economic growth in the United States most notably by China, Japan and Mexico. Several successive U.S. Administrations have adopted and promoted free trade drawing upon the theory of absolute advantage espoused by Scottish philosopher/economist Adam Smith in 1776 and embellishment of theory to comparative advantage by English economist David Ricardo in 1817 arguing that all nations benefit by international trade . The essence of trade theory is that all participating countries gain from free trade. The implicit assumption behind the classical trade theory is comparative productivity.
However, the Washington trade establishment has ignored foreign governments tampering with cost, providing subsidies to promote exports, and manipulating the exchange rates; all of which have put the American producers at a disadvantage causing the unfavorable trade balance for the United States. It follows that current foreign trade competition is not based comparative productivity differentials per classical theory, instead it is manipulated by government's political and nationalistic decisions. They keep wages down, disregard child labor , environmental regulation, safety standards, retirement income and the like. It means the U.S. free trade approach is competing with mercantilist approach of protectionism maximizing exports at any cost.
It is important that the trade dissonance and intervention be corrected through international agreement so that international trade is kept free and competitive and contribute to growth and prosperity for all concerned. U.S. net export sustained deficit ($708 Billion in 2007) since the beginning of the 80s just about the same time when the Chinese economy began to surge. It is important to note that the stat of global trade has significant impact upon global recession and growth, war and peace and national debt. With the exception of China, all countries have adopted a flexible rather than fixed exchange rate. When a country intentionally and artificially lower their export price to improve their trade balance it is called dumping (China). Such a practice invite retaliation and trade wars.
Globalization is the current international integration of the world economy. It has experienced perils and prosperity in the past. It has contributed to prosperity of many countries most notably the emerging industrial countries.
In the 1930s international trade collapsed. The 1970s there was sharp increase in inflation and oil embargo, in 1994 / 1995 capital flight from Mexico, banking panic in 1997 in East Asia, default on Russia debt, and the great recession of 2007 - 2009 which spread globally.
Although the U.S. economy is relatively self-sufficient, nevertheless the challenge of candidate Donald Trump is valid. Labor cost which constitutes 70% of production is kept lopsided when wages in some foreign countries are kept down to a ratio of one to twenty or more which puts the U.S. exporter at a disadvantage. Trans-Pacific Partnership (TPP) would have to be evaluated in light of relative costs. Trade is largely influenced by completion rather than productivity.

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