The United States should have a general policy of free trade.

Free trade is riddled with huge problems, most of which are generally acknowledged even by free traders. As Paul Krugman, winner of the 2009 Nobel Prize in economics, writes: "it's hard to avoid the conclusion that growing U.S. trade with third world countries reduces the real wages of many and perhaps most workers in this country. And that reality makes the politics of trade very difficult." [1] I argue that free trade is not overall beneficial, and that its problems can be solved with pragmatic restrictions.Comparative advantageFree trade is fundamentally predicated on the false theory of comparative advantage: it is beneficial for the US to import some goods (including services) in order to free up our workforce to produce more-valuable goods instead. The logic seems intuitive, which explains its support by many. But I assure readers, there is a growing consensus among economists that comparative advantage and free trade is deeply flawed. I will attempt to explain why.SustainabilityA free trade policy falsely assumes that trade is sustainable. When the US buys goods from foreigners, it must give them something in return. There are only three things we can give in return: goods we produce today, yesterday, or tomorrow. When we end up using the 2nd and 3rd option, goods we produced yesterday and tomorrow, we produce a trade deficit. Even Pro admits free trade causes the trade deficit. See Pro’s [3] and [4].As a result, foreigners now own 50% of all publicly traded Treasury securities, 25% of American corporate bonds, and roughly 12% of American corporate stock. Net foreign ownership of American assets is $3.5 trillion.The Economic Strategy Institute estimated in 2001 that the trade deficit was shaving at least one percent per year off our economic growth. Following in their footsteps, economist William Bahr has estimated that our trade deficit since 1991 has made our economy 13% smaller than it otherwise would be. [2] That’s a hole in our economy bigger than the entire economy of Canada. Other economists have reached similar conclusions.6.5% of our federal budget goes to interest on this debt. According to the World Bank, if free trade continues, “the U.S. net international investment position – which compares the value of foreign-owned U.S. assets with the value of U.S.-owned foreign assets – will hit a staggering minus-69 percent of annual gross domestic product by 2025.” [3] In plain English, free trade is unsustainable.Deficit trade also destroys jobs right now. It is estimated that every billion dollars of trade deficit costs Americans 9000 jobs. For example, the trade deficit with China from 2001 to 2008 cost the US 2.8 million jobs. [4] Keep in mind that, because Americans consume more than they produce, the debt will have to be paid for in the future. Foreigners already gave us their goods, which we bought on credit; they won’t owe us anything later. In the future we will be required, in effect, to work without being paid.The trade deficit occurs because free trade makes no distinction between short-term or long-term efficiency. It treats short-term and long-term as completely arbitrary factors. Hence, free trade maximizes short-term living standard, but it comes at the expense of long-term prosperity. Again, free trade is simply unsustainable.The flip side of financial debt from imports is unsustainable exports. The U.S. exports a significant quantity of nonrenewable resources. Depleting nonrenewable resources, along with pollution and environmental damage, are factors that free trade completely ignores. This makes completely unregulated exports unsustainable as well.We conclude that free trade is unsustainable. This is a serious problem that is easily fixable. We achieve financial sustainability by controlling trade and fixing the exchange rate. The solution to unsustainable exports is to tax or otherwise restrict trade that depletes nonrenewable resources or emits pollution.ExternalitiesAn externality is the economic term for when a product’s price does not reflect its true economic value. A classic negative externality is environmental damage, which reduces the economic value of natural resources without raising the price of the product that harmed them. The classic positive externality is technological spillover, where one company’s inventing a product enables others to copy or build it, generating wealth that the original company does not capture. Free trade is driven by prices, so if prices are wrong due to positive or negative externalities, it will recommend bad policies.China’s economy, for example, has grown less than it seems when one takes into account the massive pollution and destruction of its soil and air. Free trade not only permits pollution but encourages it, as a way to grab a cost advantage.The issue of externalities is a well-known problem, even to honest free traders. The solution is to end free trade, tax imports produced in a harmful way, and subsidize research and development of new technologies.Lower Prices?This is where we really see the problem of comparative advantage. Anyone who understands comparative advantage knows that free trade affects relative prices, not the price level. When a country opens to free trade, it is the relative price of imports that comes down; by necessity, the relative prices of its exports must go up. Pro's examples of lowered prices (like the Wal-Mart effect) have to be qualified to take into account the fact that the relative price of the goods the U.S. exports is higher than it would have been absent free trade. This means the prices of domestic goods will go up!Stolper-Samuelson Theorem and Income InequalityThe Stolper-Samuelson theorem [5] is the underlying mechanism of free-market economics. It says that freer trade raises returns to the abundant factor of production and lowers returns to the scarce one. In the US, the abundant factor is capital and the scarce one is labor. Free trade thus hurts American workers. The jobs that suffer most are those that are easily tradeable and can be produced through cheap labor abroad. This primarily impacts low-skill workers, who will either lose their job or be paid less. So while free trade may expand our economy overall, it destroys a huge number of American jobs as well as increasing the wage gap between blue-collar and white-collar jobs. Keep in mind, the majority of US workers are blue-collar workers. In the US, free trade literally redistributes wealth by making the rich richer and the poor poorer. This is unfair. In fact, in 2006 it was estimated that freer trade cost the average household earning the median income more than $2000. [6] For many households, that is more than their entire federal tax bill! Anyone against higher taxes and big government should bear that in mind when evaluating free trade.An Alternative to Free TradeI particularly like one proposed by Warren Buffet: the idea that exporters be given $1 certificates for every dollar of their exports, and that importers would then have to buy a certificate from them for every dollar of goods they imported. This would, of course, force America's trade into balance immediately, solving a major problem with free trade.Concluding RemarksFree trade creates win-lose situations. When imports replace goods produced in the US, consumers enjoy lower prices on impored goods -- but workers don't like the lost jobs. Given that consumers and workers are ultimately the same people, this means they lose more as workers than they gain as consumers. There is no theorem in economics that guarantees the gains of consumers outweighs the loss of workers.There are fatal flaws to free trade that are fixable. Many more problems exist that, because of space limitations, I will try to cover in future Rounds. [1] http://tinyurl.com...[2] http://tinyurl.com...[3] http://tinyurl.com...[4] http://tinyurl.com...[5] http://tinyurl.com...[6] http://tinyurl.com...