Five consecutive years of record trade deficits. There are very few rationalizations for supporting unilateral global free trade, but in the spirit of David Letterman, here’s my top ten.
10 We need to prove how bad our laws are. If it destroys every small business in the land, then we’ll do it.
9 Hey, I’m getting cheap clothing, cookware, luggage … Why should anything change?
8 We’ve got a war to pay for. The economy can wait.
7 It’s about the time the US got their nails clipped.
6 Give it time, things are only getting better.
5 Trade deficits are meaningless. It’s only paper.
4 Well, it’s going to crash sooner or later. Let’s ride the tiger as long as we can.
3 Don’t you see? It’s dollars! We can print them!
2 These (lending) countries won’t let us fail. Who would they sell to?
And, the number one rationalization of unilateral free trade, drum roll please:
Consequences nonsequences! I have good intentions!
Seriously, It should be apparent to anyone that true free trade can only exist between equally free people. Free trade between subjects of different laws appears impossible. In actual fact, international free trade can only be approximated where the international and domestic policies of the two countries closely correspond. When you buy your microwave oven from a foreign factory, you are dealing through the many tiered intrigues of two intervening governments, so it is not even remotely free trade. It is heavily regulated and politically manipulated trade. Comparing the US and China, in the US trade and domestic policies are manipulated for and by domestic politics. And in China, … ?
I agree with the great majority of the opinions expressed at Samizdata. I avoid echo chambers and this open and challenging character is a big part of what attracted me here. Every claim or position is open to debate. This is how we strengthen and clarify our positions, and for those who are activists among us, our strategy and tactics. When I hear sacred, unchallengeable mantras being recited, I challenge them.
Liberty advocates can not understand why we have so little general support when what we want to do is ultimately so good and beneficial for everyone. In the case of free trade, there are many powerful reasons that it is not. We have had contributions and comments on this blog about cultural misuse or misunderstanding of words; for example, ‘liberal’. ‘Free trade’ is a term that appears to be misunderstood by many or most of those who use it.
Free trade does not equal free market. Free trade is merely the absence of one level of restraint on the movement of a particular category of valuable between regions under differing regulatory environments. Unilateral free trade is restraint in only one direction. Think of unilateral free trade as a diode. International trade is manipulated by more than tariffs and barriers. It is also manipulated through monetary policy, domestic labor taxes and subsidies, labor laws, wage laws and environmental regulations. Truly free trade is impossible between different regulatory environments. This reality must be addressed in all international relations. Between ideologically opposed nations, trade barriers are the last things that should fall, not the first.
Many people make claims that free trade of any degree helps both countries. They generally support this by pointing to lower prices in the consuming country and higher incomes in the producing country. These advocates seldom address the trade deficits that are the inevitable result of either unilateral free trade in any environment, or of bilateral free trade between nations with significantly different domestic regulatory environments. Producers of goods who’s production is heavily regulated in their own country, are having their businesses and investments destroyed by competition from goods made in less regulated countries. Libertarians pronounce this a good thing, ‘survival of the fittest’ and all that, but then can not understand why these domestic business owners and their employees don’t support the libertarians’ ‘you first’ battle plan against the regulations. Duh!
And that is only one of the flaws in the survival of the fittest interpretations. There has also been an optimistic but generally false claim that free trade between differing regulatory environments causes the stricter nation to loosen up its internal controls. And yet, this is clearly not the case looking at 15 years with our biggest controversial trading partner, China. Far from their regulatory environment becoming freer, the farther along our free trade progresses, the more they are adjusting their regulations to match ours. Or even worse! Meanwhile, in the same frame of time, little if any liberalization has occurred here. ‘But these nations have become more liberal since they have begun trading with us‘ is the usual claim. And yet historically, where highly controlled internal environments have existed, the absence of trade has served to weaken the nation and ultimately forced it to loosen internal controls or collapse. And free marketers do understand this. Their opposition to trade sanctions is always on the grounds of enforceability; nobody doubts their theoretical efficacy. One could better argue that instead of encouraging governments to alter their domestic behavior, open trade rather more encourages the formation of trading blocks made up of of nations with similar regulatory structures and cartels for exports to non-allied nations. What free trade advocates ignore is that international trade is manipulated by governments, not individuals. Few governments find incentive in potential benefits to individuals. They manipulate for purposes of gaining regional or greater hegemony. When we are dealing with governments whose purposes are at odds with ours, we must treat trade as both a vulnerability and a potential weapon.
Tight borders and trade control strengthen whichever side has the best internal structure. Likewise, they weaken the side that has the worst internal structure. Extreme cases are readily available whether they be Cuba, Mao’s China, or North Korea. Open borders sustain the weak while draining the strong. Does anybody for a second propose that we would even remember the names of Saudi Arabia, Iran, or any number of other oil nations if it were not for the consequences of trading with them? What purpose does our trade deficit with these nations achieve beyond financing attacks against us, the source of their wealth? Many people are quick to proclaim the apparent benefits of cheap oil to our economies. And yet, what have we done but borrowed our future and put it on the international credit card? Anybody can create the illusion of wealth by spending more than they take in. And what would those oil dollars have been used for if they had stayed in free market (and energy hungry) nations? I personally suspect fusion would be yesterday’s news by now.
And how is our staggering trade deficit with China any less the symptom of our addiction to another nation’s manufacturing capacity than our trade deficit with Saudi Arabia is a symptom of our addiction to other countries’ reserves? I make no challenge that our trade with China is to their best interest. But instead of being compelled to use our technological expertise to automate or otherwise improve our own production capacity, we are exporting production capacity to China in exchange for debt. There is no way that this can be interpreted as any thing more than a very short acting anesthetic to our very real problems. People lauding the long term benefits of this arrangement ignore not only the harm to our capacity, they are ignoring the unpleasant fact that many of our largest trading partners are not ideologically or even militarily our allies.
Other people in order to make their case, conflate ineffectually applied government controls with liberal government. Wrong. This is a mistake of deadly consequence. Not articulating the difference between fascist ‘capitalism’ and free enterprise capitalism is either negligently or wilfully misleading. These governments are seeking improvements not in the direction of liberty, but in the direction of more effective, less destructive control. Fascist nations historically have been capable of great accomplishments and what matters more than how well they presently enforce market controls, is what their philosophical intentions and inclinations are. Is it possible that China’s past and present world market success is the consequence of ineffective, and not liberal government? Is it also possible that their ultimate goal is somewhat closer to national socialism?
As much as we would like to see more and better examples, it is our countries that are the freest in the world. What few exceptions that may have more freedom are undeniably under our protection. We face so much political opposition internally because, in our insistence on free trade with nations who would at the very least see us deposed, we are advocating our own societies’ destruction. There are among us those who would risk the destruction of the freest nations in the world in order to make them freer. To them I say, demonstrate you theory with something less valuable. Show me where policies leading to ever higher record trade deficits have done anything but destroy the debtors. Voters who understand nothing else about individualist/libertarian ideals, are smart enough to reject plans that export our strength, wealth, and self reliance to nations that are not only not our friends but, as a matter of public statement, oppose us and our continued success.
In summary, free trade is a worse than meaningless term. It is a deceptive one that slanders the word ‘free’ for other uses. Trade between non-allied nations will always be manipulated through trade, monetary and labor policy. To deny a free market nation the ability to defend itself from attacks by the aggressor nation’s market machinations is to deny it a very important form of self defense. I support free trade with nations that have fundamentally similar philosophies of individual liberty. This includes most of the Anglosphere, Japan, South Korea, and many nations of the commonwealth. But trade with nations that do not accept, or are even antagonistic to our pursuit of individual liberty, must be carefully qualified and used as a tool for the expansion of freedom, not the destruction of it.