Tuesday, April 7, 2009

How Free is Free Trade?

Free trade sounds like a no-brainer, right? What could be wrong with Free Trade?

I suppose the 1950’s era shopping malls were one of our first experiments with free trade. I still remember the battles during the 50's between the Stanford Shopping Center and the town of Palo Alto. The shopping center opened, and Palo Alto had two choices—fight back, or give up. The town fought back with small, unique shops that were not duplicated in the big shopping center. Many towns simply gave up.

Then came Wal-Mart. Low prices dominate. Again, what could go wrong? Well, almost everything. Wal-Mart’s preoccupation with low prices was really a not-so-thinly disguised predatory marketing concept aimed at eliminating the competition; and who was the competition? Well, small town shops, for one. They couldn’t compete, so many simply gave up. But Wal-Mart’s couldn’t stop. Low prices had eventually to give rise to moving its sourcing off-shore. Wal-Mart moved to China, metaphorically.

Then came free trade, globalism, call it what you will. Decrying free trade is all about pissing into the wind, I guess.  Free trade/globalism didn’t really begin with international trading. If you examine industries within the US, it is clear that the movement of industries within the country preceded its move to other shores. Textiles is the pre-eminent example, as it shifted from New England to the South, and then it just kept moving, with lower labor costs serving as the motive force. But other industries, like iron and steel, in fact almost anything that could be manufactured and that required labor, was going to move.

Enter China. I guess, like many people, I never paid attention to the rapid shift of country-of- origin from almost anywhere to China. I know that virtually everything in Wal-Mart’s is made in China. But, since I never shop in Wal-Mart’s, it didn’t seem to matter much to me. But increasingly, I began noticing that, wherever I shopped, the country of origin was China. One day, I walked into a Sears, looking for a leaf blower. I asked the clerk whether he could show me leaf blowers not made in China. He shrugged, and said, “I’m afraid I can’t help you.” Now the reason I wanted a tool made someplace other than China was not jingoistic. I would have bought one made in Japan, or Denmark. No, the reason I didn’t want a Chinese made leaf blower was quality. I had become accustomed to the single dominant characteristic of all Chinese made goods—they are essentially all CRAP. That is, price seems to be the sole criterion. Quality, per se, has disappeared. Even when the Chinese products look good, they perform badly, break early, or threaten to kill you. Why do large wholesalers continue to buy Chinese products? Price, and price alone.

Americans have become addicted to low price and what drives the American market, drives all markets.

Is there an answer to this global dilemma, short of trade barriers, which proved calamitous during the 1930s? I don’t really see any quick solution. I do see a possible path, however. That path would be characterized as one containing high quality, unique products. As a beginning, for example, maybe Home Depot could create a “Not-Made-in-China” section of its store, focusing on tools or other products that are guaranteed high quality, and, of course, made someplace other than China. I say Home Depot, because I expect it will take, initially, larger stores with more capital, to begin moving us out of this current mess. Later, as the public becomes more attracted to high quality, boutique stores could begin to re-enter the market, sort of the way some shops are now re-entering small town America, offering unique products not found in large shopping centers.

Maybe, once the public becomes aware that, “Too Big to Fail” is not a virtue, but a vice, smaller will come back into vogue, and quality will regain its rightful place in the Global lexicon. And perhaps then, much as the little textile town of Kannapolis is experiencing, as pictured above, Phoenix can again rise from its own ashes. 

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