According to the theory of comparative advantage, free trade is supposed to benefit all those involved.
After years of putting the theory into practice, it has become apparent that the only entities that truly benefit from free trade are large multinational corporations.
Bill Ong Hing, a professor of law at the University of San Francisco, writing atThe Huffington Post details just how things went wrong.
He points to Mexico’s experience in the North American Free Trade Agreement as an example of the fallacy of free trade.
NAFTA lowered or eliminated many of the remaining tariffs between Canada, the U.S. and Mexico. At first, tens of thousands of jobs were outsourced to Mexico to take advantage of the low wages there.
But it was not only American jobs that went south of the border. Mexican farmers soon found it impossible to compete against highly subsidized American agribusinesses.
“Now the vast majority of corn purchased in Mexico is U.S. corn, and more than a million Mexican farmers lost their work. Mexican workers who were helping to produce pork products and auto parts lost their livelihood as well,” he writes.
“Is there little wonder that many of those displaced by NAFTA look to the United States as a place to find work?”
While Mexico did briefly benefit from NAFTA, the benefits did not last long. Soon after joining the World Trade Organization, Mexico suddenly found itself forced to compete with even cheaper labor from China.
“So in spite of Mexico’s comparative advantage (cheaper labor than in the United States) and being next to the world’s largest economy, Mexico got blindsided by China because Mexico was also persuaded to enter the World Trade Organization,” he writes. “Mexico lost hundreds of thousands of jobs to China, and in the process was replaced by China as the largest trading partner with the United States.”
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