The Opening Bell

Articles from The Opening Bell

Are We Afraid to Compete?

by James F. Bell, CFP®, President & Founder

July 2015

The dispute between President Obama and Congress regarding the Trans–Pacific Partnership (TPP) trade deal raises the question of how committed to competition we Americans really are. Obama is asking for fast-track authority, generally granted to most presidents, so he can negotiate an entire trade package with twelve Pacific nations (a group that does not include China), which together are responsible for 40% of the world’s economy. (Fast-track authority would mean Congress would have only a yes or no vote on the trade deal without the opportunity to propose or vote on amendments.)

The argument against this free-trade -opportunity centers on the need to protect American jobs. I am not sure anyone else thinks like I do, but this argument for protectionism seems similar to arguing that men should be allowed to oppress women in the workplace in order to protect jobs for themselves. Historically, it has been advantageous for men to discriminate against women so they would not have to compete with them for jobs and income; discrimination results, of course, not only in lost opportunities for women (or whatever marginalized group), but in more universal losses to the community when good talent is neglected.

The ideal economic environment is one in which each person or group enjoys equal opportunity in the career of their choice, without prejudice, and, as in this TPP case, in which each country competes internationally without restriction. If China can produce the best steel at the best price, then let’s have China compete freely in the global steel trade. If America produces the best generation of entrepreneurs, let’s have America invent new products and services and freely market them to the world.

Of course, free trade does not require anyone to buy from foreign sources; if buying American-made is important to American consumers, they should have the right to express their values this way. Free trade does, however, provide the opportunity to buy from foreign sources, and it fosters competition.

Protecting Consumers, Workers, and the Environment

Trust is a crucial component at the heart of all business relationships and transactions.

Free trade is complicated by concerns about the lack of safety standards in manufacturing from country to country. It was not so long ago that American consumers discovered they were buying toys from Chinese manufacturers using toxic lead paint that had been outlawed in the United States.  More recently, in a report on 60 Minutes, Lumber Liquidators was found to have been selling Chinese-manufactured wood flooring containing dangerous levels of cancer-causing formaldehyde, which is also outlawed in the U.S. As a result, their stock price remains over 80% off its all-time high.

The Obama team working on the Trans-Pacific Partnership asserts that the agreement will require Asian competitors to improve their labor and environmental standards. The agreement will also establish rules to settle trade disputes, lower tariffs, honor patents, and protect intellectual property. These qualitative initiatives are crucial to protect consumers, workers, and the environment.

As American consumers, we can’t always make purchasing decisions on price alone; we need to have quality assurances in place, but also do our own due diligence. If you are having your floors at home -replaced, wouldn’t it be prudent to know about the manufacturing source of the wood products? Have they been tested? Are they safe? Do they meet American environmental standards?

Growing Global Trade Cannot Be Stopped

Whether or not the United States consummates the Trans-Pacific Partnership, global trade will increase year after year. The question — and opportunity — on the table is, “Who will write the rules for the unstoppable wave of international commerce?”

If the U.S. declines this opportunity to lead these negotiations, China will step in to fill the vacuum, and China will get to set the rules. The Pacific nations are looking for frictionless global trade. If the U.S. backs out, they will turn to China for help. It is far better to be at the table designing solutions than to be outside looking in while China creates their own competitive upper hand. I hope that Obama and Congress come together to do something constructive by manifesting our leadership in creating the Trans-Pacific Partnership.

 

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