Economic philosophy, as it applies to trade, is bimodally divided into two camps. On one hand, there is the camp to which I ascribe, that being the free market disciples; the belief that borders should be open; products should be made wherever in the world they can be manufactured for the cheapest cost to the required quality specification. The other camp is referred to as the “protectionists.” Those that align with “my country right or wrong” adage and as such should be protected with closed market and borders. However, implied within free trade is the expectation of fair trade. Take a look at the following graph which outlines steel pricing trends. Does it not suggest something’s just not right?

My students at Northwestern represent an international kaleidoscope. They are some of the best and the brightest the world has to offer. As they are taught by an executive from the United States steel industry, the subject of trade is front and center. However, to even the American students, I advise them to never buy a domestically manufactured automobile or any product for that matter, under the guise of being patriotic. I encourage them to buy the best quality/value for their dollar, and if it is a foreign car, so be it.

As that “vote,” with their dollar, is our nation’s motivation to build world class products at a competitive price. If we are not competitive on the world stage with labor costs, then offset such with automation creation and engineering as so many American manufacturers have successfully done.

If we as a nation compete on a level playing field and lose, then so be it. Let us lick our wounds and regroup. The operative phrase is “level playing field.” However, the free trade model is broken, as the field is anything but level. Some labor cost advantages are actually not through competitive advantages, but rather through labor exploitation.

Further implied in free trade is that we would trade with other free countries, yet trade with Communist bloc countries, all with a dismal human rights record, is a daily activity. Countries nationalize steel industries and subsidize those that are purportedly non-government owned; the more clever ones simply manipulate their currency. The result is they not only export their steel and other products but also their unemployment!

While this is occurring, our nation/government responds by continuing to pile on the regulatory red tape and significant expense to our enterprises. For example, regulation compliance has an annual cost of an unbelievable $1.7 trillion or 12% of our entire GDP, yet founding father Jefferson said, “the best government is that which governs least.”

As an over simplified primer, required by the constraints of this article, 50% of our nation’s steel is manufactured through integrated mills. This technology requires the charging of the mill with virgin material such as: iron ore and coal. The other process is the electric arc furnace known as mini mills, where the process is charged not with virgin materials but rather scrap.

When you blend together two technologies to aggregate the industry, a historic metric of some confidence was that a mill breaks even at 80% capacity utilization and $630 per ton pricing. Granted, with the recent free fall in commodity pricing and scrap, that break-even has lowered appreciably but not to the level of current pricing, as these levels are artificial and significantly unsustainable – not to mention what the pricing free fall has done to distributor inventory value. Note that inventory is a distributor’s largest asset followed by receivables.

If you allow me the liberty of rounding, there is approximately $1.5 billion tons of steel capacity in the world, with $750 million of this capacity in China. Most of that capacity was consumed in China as they built the infrastructure in Shanghai and Beijing for the Olympics, which was so beautifully executed. Post Olympics, they launched infrastructure projects throughout the country in an attempt to keep the masses employed, the thought being that the strategy would eventually create the first of a middle class. However, China has now experienced the reality of the inability to sustain an artificially inflated double digit growth rate of their GDP.

This resulted in the excess steel capacity heading to Europe, which does not have growing demand given the current recessionary environment, and as such, this capacity ends up destined for the United States, where economic activity is strong in relation to world alternatives.

In fact, as the graph below indicates 34% of our steel consumed last year was satisfied by foreign imports made all the more attractive by a dollar which has strengthened over 23% over the past year. For the first quarter of 2015, imports have grown 14.5% over the already precarious level of the prior year.

Many of those who are enjoying the international buying power of the enhanced dollar are the very same companies that will find their exports non-competitive. I believe there is a role for a foreign presence, but not through exploitation, manipulation or unfair trade. Further, not to the degree of 34% of our consumption. Again, it just does not seem to pass the proverbial smell test.

Again, if you allow me the liberty of rounding, international trade law renders it illegal to sell a product aboard either lower than your cost of production or below the cost for which it is sold at home. However, such occurs each and every day much to the demise of the American manufacturing industry. Our leaders (a term used loosely) in D.C. need to wake up and defend their constituents (those very same constituents that elected them) those very same constituents that create employment. Why does this simple “101” stuff seem so ubiquitously elusive?

I offer a possible answer: If I were to buy an automobile but in doing so took a loan from the bank, I may have the car but the bank holds the title. The title is ownership of the asset. You see, the power goes to those who hold your debt.

It is possible that the U.S. reluctance to enforce trade laws is somehow related to the fact that it would put us against those very countries that hold our debt? Anyone wonder what economic life would be like here in the U.S. if China or Japan elected not to rollover their purchase of our treasury instruments every 90 days? Each of those countries holds over a trillion dollars of U.S. debt instruments. It makes it somewhat difficult to enforce trade laws, doesn’t it?

And some dare call it cynicism. There is relief available through the filling of a 201 case; however, such is an expensive, time consuming, three year journey. BTW: $6 trillion or 34% of our debt is held by foreign countries, the top being China, followed by Japan. Please note that a trillion is mathematically a million millions.

Summarizing, we must preserve that which is vital to our country.What could be more vital than a competitive, profitable, efficient manufacturing sector that creates high paying jobs and pays significant taxes? I often wonder how those in the legislature who we elect express to their children or grandchildren what they do for a living.

I refer back to our title – the free market fallacy. The fallacy is that the purported trade laws do exist. After all, if something isn't enforced, does it really exist?