From Thad Beversdorf at firstrebuttal.com:
Free trade is a great concept, as are free markets and freedom. The problem is none of these things exist in practice because they don’t provide sufficient advantages to the ruling class. The Fed and HFT systems now dominate global markets, western nations systematically overthrow any (freely elected) foreign government that doesn’t bow down to them and free trade agreements are put in place to ensure investors maximize profits no matter what the costs to society. Let’s focus on this last one.
You see rarely do nations turn away capital investment inflows. And so trade agreements are not created to allow for the free flow of capital as is generally touted. That is perhaps the biggest fallacy in the public’s perception of ‘free’ trade agreements. If a US company wants to build a factory in Vietnam and employ 200 workers there they will be welcomed with open arms. So then if these trade agreements are not meant to allow the free flow of capital what is their purpose?
It’s very simple. In microeconomic terms, it boils down to risk/reward. That is, all investments will generate some expected cash flow but will face some risks of realizing those cash flows. One way to improve return on investment is to lower costs, everything else equal. So if I can reduce my costs yet maintain my revenue and risk structures then I am better off. Corporations realized that one very easy way to reduce costs is to move labour to undeveloped nations where labour costs are only 5% to 10% of those in developed nations. That means I can greatly improve my returns to investors if I go ahead and move my operations overseas.
The caveat in the plan remember though is I have to be able to keep my revenue and risk structures the same. And this is where corporations realized they need a trade agreement. You see moving hundreds of millions in borrowed capital to a nation that has poor contract law and unstable governments adds a tremendous amount of risk to the investment model. And so the added risk (which significantly lowers the probability and thus value of future cash flows) creates new costs that essentially negate the reduction in costs obtained through cheaper labour. This means ROI doesn’t improve, which was the point of moving operations overseas.
To continue reading: Let Me Show You Why Trump is Right on Trade Agreements
