What has over 3 decades of “free” trade gotten us?

For the US, the answer is easy; we’ve got a gutted commons. We don’t make most of the consumer goods we buy these days, meaning that even if you want to “buy American,” you can’t do it anymore. Thanks to patriotic corporations like Mao-Mart, even manufacturers that wanted to hang on in America were forced to relocate their operations to China, or face going out of business as Mao-Mart eschewed their product lines. Many of these firms were making a profit in the US-but their profits weren’t enough for Mao-Mart, who were determined to drive their own bottom lines ever-higher by forcing suppliers to constantly find ways to produce lower-cost goods. Mao-Mart’s heirs have completely forgotten Sam Walton’s philosophy of always keeping ALL of your options open; “Mr. Sam” usually had a local source of just about any good imaginable that he could turn to if he found other suppliers unable or unwilling to fulfill demand.

What has “free” trade done for our American neighbors? If we go down to Mexico and have a quick look around, we’ll see one “free” trade legacy almost immediately; like us, the Mexicans have many boarded-up factories in towns bordering the United States. Once Upon A Time, we promised the Mexicans that if they would just remove all their tariffs and embrace what we call “democracy,” then all of Mexico would become prosperous from all that “free” trade. So the Mexicans embraced “democracy” and removed their tariffs. Their reward was multinationals pulling up and shipping out the jobs to that bastion of freedom and democracy, the Peoples Republic of China. But there is another little side-effect of “free” trade that is not readily visible when you’re touring the ghosts of Mexico’s industrial period. Thanks to the absolutely insane suggestions of “free” traders like the Reagan Administration, Mexico stopped growing corn. Once a net exporter of corn, the Mexicans now have to import almost everything. All those corn farmers who had to go work in factories because they couldn’t grow corn anymore are now out of luck AGAIN. Is it any wonder so many of them fled north?

The legacy of “free” trade worldwide has been a gutting of the commons of country after country; we gutted our industrial capabilities, the Mexicans stopped feeding themselves, and multinational corporations have turned China into a cesspool of pollution and filth, polluting on a scale even Mexico would never have tolerated.  We’ve been told that the movement was inevitable and unstoppable, and that we would just have to suck it up and deal with it.

But there was a detail the “free” traders left out of all this, and it was a big damned detail. What would happen if the oil that we use to move all this stuff out of China got scarce, or prohibitively expensive? How would we be able to do all of this “free” trading then? Who will feed the places that we talked into giving up farming? And where will we get the consumer goods we no longer make?

It looks like we’ll be answering those questions fairly soon. As we can see every day now, the price of oil is going nowhere but up-and anything that is moved by oil is going to get more and more expensive. As a result, all of the “free” trade rhetoric is going to wind up going right out the window. In the last few weeks, places like India, Thailand, and Vietnam have stopped exporting rice, hoarding it for their own populations; this trend will continue as oil gets more expensive. Moreover, as Chinese-produced goos increase in cost, we on this side of the ocean will have to start looking locally for more and more of our needs. And I’d venture to guess that Monsanto and ADM are about to figure out the limitations on their vision of controlling the world’s food supply.

We Americans will find it exceedingly hard to cope, at least initially. We’re going to have to get used to doing more with less. Here in the JollyRoger household, we’ve begun already; our vegetable garden this year is for more than letting the little ones see how to grow plants, and we bought a 90MPG motor scooter yesterday. I also intend to acquire a couple of EdenPure space heaters before winter comes.

My hope is that at long last, all of the idiots that go around babbling about how wonderful “free” trade is will finally wake up to what it mean to “trade” away all of your capabilities. Between the destroyed dollar and our destroyed manufacturing base, we desperately need to rethink almost every so-called wisdom of the last 30 years. Chimpy had a wonderful opportunity to set us on that course on September 12, 2001-but like the coward he is, he chose to make political points without actually trying to address the problems. His successor will now enjoy all of the benefits of the “free” trade policies of the Reign of Error.

I’ll tell you this; I’m glad I don’t have that job to do. Anyway… go read this article in its entirety; you’ll see a lot of stuff we’ve been talking about for years now.

No industry will be unaffected. Any company that moves goods or people needs oil. At $200 oil could make the long-predicted death of Detroit, or at least one of its Big Three, a reality. Airlines are vulnerable too. Skyrocketing jet fuel prompted American to announce it would cut flights due to the grounding of numerous older, less fuel-efficient planes. Air France-KLM recently warned that profits are likely to fall by a third this year, and CEO Jean-Cyril Spinetta suggests $200 oil would represent a far bigger shock than 9/11 or the SARS epidemic of 2003, which sent the airline industry into a tailspin. “It’s more than a change, it’s a revolution, a new industry, in fact,” says Spinetta. “We would have a lot of bankruptcies very rapidly in Europe, the U.S., and Asia. And there will be restructuring of networks, cutting routes, cutting capacities.” The effect of mergers and cutbacks may leave smaller cities from Tuscany to the American Midwest with ghost airports.

The oil-induced depression of the American consumer may be a harbinger of what’s to come elsewhere. In the United States, consumer confidence is now at a 15-year low. Energy Department data show that $4-a-gallon gas is finally forcing Americans to cut back on driving; this year gas consumption in the country is expected to drop for the first time since 1991. No amount of “fiscal stimulus” looks likely to help: Citibank estimates that even if prices merely stay as they are, the year-on-year increase in the U.S. consumer-gas bill will siphon away the bulk of the $120 billion in expected tax rebates. As food and gas prices go up, spending on everything else will go down. No wonder big-box stores like Wal-Mart are having record quarters, and middle-market chains are suffering. (A Jolly Roger note: don’t worry. Mao-Mart’s entire business model is doomed. They will be getting smaller, and it will be rapid. Just wait for it.)…

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With oil futures up 40 percent in just the last two months, the sense of an accelerating shock is already palpable in the United States. While American automakers were moving slowly toward smaller cars before the spike, sales of SUVs and pickups are now falling so fast, they appear to be caught flat-footed. “At $200, GM tanks,” says energy expert Philip Verleger. “They just don’t have time to fix their fleet.” Ford CEO Alan Mullaly, warning two weeks ago that he no longer expects a return to profitability in 2009, said he believes the gas-price shift is permanent. Ford has slashed production of its F-series pickup trucks, an American best seller for 20 years. Meanwhile, Nissan unveiled a $115 million new plant outside Tokyo designed to build lithium-ion fuel cells to power a new generation of battery cars.

The individual decisions about what we’ll drive, how often we’ll fly and whether we’ll upgrade our televisions as quickly are only part of the larger macroeconomic threat of higher oil prices. The threat has yet to be officially tallied; major financial institutions like Morgan Stanley have only just begun to seriously discuss the potential downgrades to the global economy should $200 oil become a reality. But already, it’s clear that oil is catalyzing the threat of inflation in rich countries as well as poor. Inflation looks likely to be about 5 percent in the United States this summer, and about 3 percent in Europe. But in emerging economies, double-digit inflation could become the norm. “In America, it will feel like the opposite of the 1990s,” says Morgan Stanley chief U.S. economist Richard Berner. “But if you think things won’t be pleasant for industrial nations, think about developing economies, where people spend 50 percent of their income on food and fuel.”

Indeed, there’s concern that as higher oil prices force many Asian economies to reduce or even cut their generous fuel subsidies, growth will slow sharply, and there could be social unrest as the world’s poorest become more desperate. The political ramifications of this (which already include moves away from free trade), combined with the ever-rising costs of doing business as usual, could force a retrenchment from globalization. “It’s a harbinger of the reversal of globalization,” says Jeff Rubin, chief economist for CIBC World Markets. “At $200 a barrel, you’ll see transport costs rise so much that they will effectively reverse the trade liberalization of the last 30 years.” He predicts that world trade will realign itself regionally, so that while Japan may continue to ship in goods from China, the United States will increasingly import from Latin America. “If you look at the period from 1973 to 1979 [when oil spiked] you’ll find the same thing happened,” he notes. “The share of imports to the U.S. from Latin America and the Caribbean rose by 6 percentage points. That was all about freight costs.”

Tags: economy, oil prices, trade

This entry was posted on Monday, June 2nd, 2008 at 9:31 am and is filed under "Free" Trade Fairy Tales, Analysis, Energy, The Republican Depression of 2008-?. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.