Free Free Lunch by David Cay Johnston

prosper.
    China suppresses many American imports. It imposes all sorts of barriers
to trade that do not qualify as tariffs, but which still tend to suppress American imports. Japan has done this for years, coming up
with safety rules, for example, to effectively block competition by American-made cars and many other products. Korea does this,
too. Hyundai and Kia have learned to build reliable cars and now have 1,300 dealerships in the United States. There is just one Ford
dealer in Korea. Ford sales are smaller than they were a decade ago. Korea exported 700,000 cars to the United States in 2006, but
imported fewer than 5,000 American cars. That imbalance accounted for the vast majority of America’s $13.3 billion trade deficit
with Korea that year. Like Japan, Korea uses unique safety, tax, and other rules to make sure that so-called free trade creates an
inflow at the expense of Americans, especially auto workers. Our government policy enables what would be better called unfair
trade.
    Trade with our two neighbors is also imbalanced. In 2006 we imported $136 billion more
from Canada and Mexico than we sold to them, partly because we buy almost a third of our oil from them.
    Census Bureau trade data show that in 2006 just four countries—China, Japan, Canada, and
Mexico—accounted for 60 percent of our worldwide trade deficit of almost $764 billion.
    The
results of this tilted playing field have been disastrous for American factory workers and communities that relied on factories. Tens
of thousands have lost their jobs to the rigged game the politicians, and their donors, call “free trade.” Autoworkers have begun
working under new contracts in 2007 that cut the wages by as much as $13 per hour. That is a pay cut of more than $26,000
annually. Compounding the pain are cuts in retirement benefits and health care. Together these throw workers who had reached
the middle rungs of the income ladder back down into the lower half, while adding uncertainty about their incomes in old age. At
the same time their counterparts in China are moving up the income ladder, though not nearly as far because China still has far
more people than jobs and real unions are still ruthlessly suppressed. For the financiers who arranged these deals, and for the
factory owners, however, the rules on trade set by our government have proven enormously lucrative.
    To further understand how government policy is enriching the few and impoverishing many in America, it is
important to understand the economics of trade and the new circumstances of globalization.
    A
basic principle of economic theory is absolute advantage. For centuries different
regions of the world have prospered making goods that exploited the natural resources and native skills of that area, something
that gave its citizens unique advantages in the marketplace. For example, it makes no sense to build a steel plant in Bora Bora, but
a lot of sense to build one in Ohio, which is near iron ore, coal, and cheap barge and rail transportation.
    A related principle is called comparative advantage. England and
Portugal both make textiles and wines. However, the relative cost of making wine is higher in England while the cost of making
textiles is higher in Portugal. Each country gains if it makes more of the product it is best at and trades for the other, which is why
the British drink Portuguese wines and the Portuguese wear British cloth.
    None of the
comparative advantages are fixed to the ground, however. With capital flowing freely across borders, so do skills, flattening
comparative advantage. Fine wines are now produced in California, Chile, and Australia. The cobblers of Italy cannot meet the
global demand for shoes, even if they worked day and night. Most people can’t pay Italian prices, either, so mass scale
manufacturing of shoes and many other goods has shifted to China, where labor is steadily increasing in skill level. The Chinese