Again, There is No Such Thing as "Free Trade"

Phyllis Schafly gives an example of what actually goes on whilst people talk about "free trade":

Although China is called a major trading partner, it treats U.S. companies like suckers, cheating them coming and going. China even intimidates U.S. businessmen so they don't dare to criticize China's unfair trade tactics.

Take, for example, the attitude of CEO Jeffrey R. Immelt of General Electric, the company now laying off hundreds of U.S. workers and giving those jobs making light bulbs to Chinese workers. He won't comment about the current U.S. case in the World Trade Organization accusing China of giving illegal subsidies to Chinese wind-turbine makers.

A few years ago, GE caved in to the Chinese government's demand that it build a large wind-turbine factory in China. Since GE owns a crucial patent for wind turbines, this demand was based on the Chinese anti-free trade policy called indigenous innovation (which China expert James McGregor calls "a blueprint for technology theft on a scale the world has never seen before").

China then developed its own wind-turbine manufacturers and is now directing purchasers to buy from those Chinese firms instead of from GE. That's the reality in what free traders naively believe is the world's fast-growing market for U.S. goods.

China wants to be the world's biggest exporter based on stealing U.S. know-how and subsidizing local manufacturers. China blatantly violates international trade laws and has no plans to be a market for U.S. products; China's principal imports are and will continue to be U.S. jobs.

[snip]

Some people foolishly call our relationship with China "free trade." But there is nothing free or fair about it. It is trade war between an aggressively protectionist communist government and a U.S. that is shackled by foolish and out-of-date illusions about free trade.

I'll put it very succinctly, for the umpteenth time: there is no such thing as free trade, despite what some libertarian-leaning economists (You can scarcely get a libertarian to admit that the government has a legitimate power to tax at all, let alone get them to admit that tariffs are legitimate.) will tell you, despite what libertarians who would love for you to believe that free trade is a "bedrock conservative principle" will tell you. Other countries find ways to protect their markets. That's the reality.

Told Ya

Free Trade does not actually exist. It is a chimera, a phantom, something from the make-believe world. Other countries find ways to protect their markets.

I keep saying that. And people--at least the people who have a clue what "free trade" means--just look at me (metaphorically speaking--they're seldom physically present) like I have a horn growing out of my head.

Now, with U.S. political, military, industrial and strategic decline vis a vis China manifest to the world, we hear the wails of American businessmen that they are not being treated fairly by the Chinese. And the politicians responsible for building up China are now talking tough about confronting and containing China.

Sorry, but that cat cannot be walked back.

Review commission chair Dan Slane says his members have concluded that "China is adopting a highly discriminatory policy of favoring domestic producers over foreign manufacturers. Under the guise of fostering 'indigenous innovation' ... the government of China appears determined to exclude foreigners from bidding on government contracts at the central, provincial and local levels."

Imagine that! The Chinese are ignoring WTO rules and putting China first. Don't they understand how the Global Economy works? You're not supposed to tilt the field in favor of the home team.

One knows not whether to laugh or cry.

The policy the Chinese are pursuing, economic nationalism, was virtually invented by the Republican Party. Protectionism was the declared policy of the GOP from the day its first president took office in 1861 to the day Calvin Coolidge left in 1929.

Free trade was the policy of a Great Britain whose clocks those generations of Americans cleaned, even as the Chinese are cleaning ours.

The quote is from Pat Buchanan--and about all I have to say is, "Told ya so."

The American Thinker on Free Trade Again

I really enjoyed this post. The author puts objections to free trade into a small, well-managed space. You really ought to go read the whole thing, but since I know you're not actually like to do so, here's a sample, with my comments interspersed:

Free trade sounds nice. Protectionism sounds ugly. Free trade sounds capitalist. Protectionism sounds Marxist. So it is worthy of note that free trade was actually viewed by Karl Marx as a strategic force, a tool with which to undermine capitalism as an economic model:

But, in general, the protective system of our day is conservative, while the free trade system is destructive. It breaks up old nationalities and pushes the antagonism of the proletariat and the bourgeoisie to the extreme point. In a word, the free trade system hastens the social revolution. It is in this revolutionary sense alone, gentlemen that I vote in favor of free trade [i].

Marx was not far from wrong. After nearly fifty years of progressive tariff reductions, America has suffered significant economic losses. This comes as a surprise to many Americans, for years inebriated with the free trade mantra.

This is because America does the "free" while the rest of the world does something else. China, for example, manipulates its currency and engages in persistent dumping, driving down Chinese prices and displacing domestic American industries.

Amen, and amen! There are few things that annoy me more than listening to or reading someone extol the benefits of free trade without so much as noticing the elephant in the room: free trade does not actually exist! Other nations protect their markets.

The results of such one-sided free trade have been catastrophic for America. Consider that in the last fifty years, U.S. tariffs have gone from 40 percent of the price of goods to 5 percent [iv]. Over the same period, manufacturing as a share of employment has fallen from 30 percent to 11 percent and is still falling.

I swear, as God is my witness, every free trade economist that I have read writes as though any idiot can do manufacturing, or as if it is somehow a low-class form of employment.

My ***. Look, I've done manufacturing. I rather like it. I started at one factory by running a large set of industrial sheet-metal shears, then operating a CNC laser cutter, then moving on to a machine shop where I spent my days operating CNC mills and lathes and my nights learning more about how it's done. When I was laid off and moved into other fields, I wasn't even close to being a full-fledged machinist, despite having been in the field for close to two years and going to school for most of that time. It takes time, time and experience, to be a good manufacturing employee. Oh, anybody, or almost anybody, can drive a small forklift, to be sure, but to be a machinist? A fab (fabrication) worker? A welder? A tool-and-die maker? Those guys don't just fall off the trees. When we lose manufacturing jobs, those guys eventually have to move on to something else. Their skills deteriorate, and for the most part, are lost to the country.

God forbid we should have to rebuild our manufacturing in a big-*** hurry. I'm not sure we could do it.

The late Milton Friedman was a committed free trade proponent. In a stunning dismissal of traditional economic theory, Friedman once remarked, "Who is hurt and who benefits ... U.S. consumers benefit. They get cheap TV sets or automobiles ... Should we complain about such a program of reverse foreign aid?"

That may sound good for the short-term, but, as classic economist Friedrich List wrote,

The forces of production are the tree on which wealth grows...The tree which bears the fruit is of itself of greater value than the fruit itself...The prosperity of a nation is not...greater in the proportion in which it has amassed more wealth (i.e. values of exchange), but in the proportion with which it has more developed its powers of production.

Manufacturing matters. Service jobs, the primary source of U.S. employment, depend on capital inputs from manufacturing even if said manufacturing is foreign. This presents problems should foreign manufacturing undergo shocks or disturbances that disrupt supply lines and, by extension, the sole source of employment for most Americans. Dependence on foreign manufacturing is inherently dangerous, since it is out of U.S. control.

The loss of manufacturing is not a trivial matter, and it has national security implications. It must be the ultimate oxymoron that Communist China is now the "arsenal of democracy." China is a strategic enemy and has threatened open nuclear war on America's homeland, and yet CFIUS has cleared the sale of factories to China responsible for producing the rare-earth magnets used in American laser-guided munitions. What happens if America ever needs to fight China?

Or, what if, God forbid, America ever needs to fight some country with which China is at all friendly?

Service economies can't issue ultimatums; only industrial economies can do that.

It is on this basis that free trade arguments fall apart. In a world with no nations, where national governments are not accountable for the economic and political security of their people, doctrines like "comparative advantage" would have validity.

Again, amen, and amen! As long as nations exist, trade wars will be just that--trade wars. And nations that refuse to protect their own people are derelict in their duties.

Refusing to protect the American economy when other nations are using manipulative "protectionist" devices is not competition, but economic suicide.

Free trade cannot work when some play by the rules and others do not. While competition and openness are desirable in ideal circumstances, reasonable protectionism has proven effective and is indeed necessary to preserve American economic strength.

This whole subject is one of the things that genuinely concerns me about the crop of "conservatives" that we are about to send to Congress. I flatly guarantee you that the vast majority of them know next to nothing about this subject and will back free trade most of the time because, if they have heard anything about it at all, they have heard it from the open-borders/free trade/free-movement-of-goods-and-people, libertarian-leaning economists that dominate most of the economic discussion in the Republican Party. You would not believe the number of "conservative" writers who pen such inanities as "free trade is a bedrock conservative principle," when it is no such thing. It might well be a bedrock libertarian principle, but whilst libertarianism and conservatism do have their areas of overlap, they are not the same thing. It is sheer idiocy to tell a nation that grew to greatness, in part, by protecting its markets, that doing the opposite is somehow "conservative," yet we have more than a few conservatives who will do just that. It's mind-boggling.

Lastly, I must point out--again--that yes, I'm aware that tariffs are not perfect and do have their flaws and negative effects. Personally, I favor the Fair Tax, which, like a tariff, is a consumption tax and will have much the same effect as a tariff, though it is likely to eliminate some of the negative effects associated with tariffs. However, if I can't get the Fair Tax, bringing back tariffs, coupled with a great lowering of income tax rates, would be something I completely support.

The American Thinker on Trade Policy

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The post from which this material is quoted was published some little time ago, maybe as long as a month. The whole thing is worth reading. Not that I agree with every jot and every tittle, but it is worth your time.

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In the trade war between the mercantilist countries and the U.S., China and the other mercantilists intervene in our markets by manipulating the price of the dollar, as compared to their currencies, so that our goods are overpriced and their goods are underpriced in world markets. In the meantime they keep our products out of their markets through various tariff and non-tariff barriers.

There are three positions on trade when a country is being punched-out by mercantilists:

1. Unilateral Free Trade. This is the Republican establishment's pacifist strategy of just taking the punches to afford an example to the rest of the world. This has been U.S. policy for three decades.
2. Protectionism. This is liberal Democrats' "industrial policy" strategy of protecting government-preferred industries with tariffs and subsidies. Pres. GW Bush did it with respect to steel and was forced by the WTO to back down. Pres. Obama did it with respect to tires produced in China and succeeded in enforcing it.
3. Balanced Trade. This is the conservative pro-free-market strategy of balancing exports with imports in order to defeat the mercantilist strategy of maximizing exports and minimizing imports. It takes advantage of a special WTO rule that lets trade deficit countries impose import duties or limitations in order to bring trade into reasonable balance. China, the largest of the mercantilist countries, only lets its people buy 27¢ of American products for every $1 we buy from them. They use a variety of tariff and non-tariff barriers to keep out American products, forcing American companies to locate their factories in China in order to sell to the growing Chinese market.

I don't think the writer has it exactly right here, but he makes the fundamental point, one that I have been making over and over again since I first began to read about this issue:

Free Trade, as envisioned by so may libertarian-leaning economists, does not actually exist. It is strictly a theoretical construct. Other countries find ways to protect their markets. Personally, I am dead set against subsidies, but tariffs--I did think it mildly amusing that the writer seemd to think "tariffs" were "bad" and "import duties" were okay, despite them being much the same thing. Shoot, I think they are exactly the same thing, and there is nothing, per se, wrong with them.

I am not unaware that tariffs/import duties come with certain problems. My personal preference would be to institute the Fair Tax, which would have much the same effect as tariffs when it comes to trade, that is, it would create a massive tax advantage to manufacturing in the United States, but it should allow us to avoid some of the problems commonly associated with tariffs. However, if I can't get the Fair Tax, enacting tariffs (accompanied by big cuts in income tax rates) would be far preferable to what the writer calls "unilateral free trade." That is just wishful thinking masquerading as a trade policy.

Well, Isn't That Just Rippin' Brilliant...

It was just a couple o' weeks ago that I found out the Chinese were cutting off supplies of rare earth materials to Japan. Now, it appears they're cutting us off as well.

Don't have a clue what rare earth materials are? This is from the article:

... rare earth elements...have broad commercial and military applications, and are vital to the manufacture of products as diverse as cellphones, large wind turbines and guided missiles.

Now, given that:

Despite their name, most rare earths are not particularly rare.

What could possibly be the problem? Surely we can just go out and mine our own? Hah! More fool you!

...new mines are likely to take three to five years to reach full production, according to industry executives...

How did we wind up in this situation, you ask, where

China mines 95 percent of the world’s rare earth elements...

How did we wind up letting A HOSTILE NATION control our supply of stuff that, for the most part, we can mine ourselves?

Very simple: the poisonous doctrine of free trade (again: not at all the same thing as free markets. Stay with me here. Don't get confused.). We refused to protect our rare earth industry with tariffs, and because China has

...lower costs and weak environmental enforcement...

the industry moved over there!

Brilliant. Just %&*(in' brilliant. Takes a degree to come up with ideas like that, let me tell you...

Just What I Been Talkin' 'Bout for Years!

One of the objections I've long had to free trade--again, let me reiterate for those who don't know, free trade and free markets are not the same thing, I oppose the one and support the other--is that if you lose some of your industries to foreign competition in the name of free trade, you might just find your tuchus in a sling if you have to, like, go to war. Or something.

Pat Buchanan says, illustrating this very point:

A fortnight ago, a Chinese trawler rammed a Japanese patrol boat in the Senkaku Islands administered by Japan but also claimed by China. Tokyo released the ship and crew, but held the captain.

His immediate return was demanded by Beijing.

Japan refused. China instantly escalated the minor incident into a major confrontation, threatening a cut off of Japan’s supply of “rare-earth” materials, essential to the production of missiles, batteries and computers. Through predatory trading, China had killed its U.S. competitor in rare-earth materials, establishing almost a global monopoly.

[snip]

The Chinese tiger is all grown up, and it’s not cuddly anymore.

And with Beijing’s threat to use its monopoly of rare-earth materials to bend nations to its will, how does the Milton Friedmanite free-trade ideology of the Republican Party, which fed Beijing $2 trillion in trade surpluses at America’s expense over two decades, look now?

How do all those lockstep Republican votes for Most Favored Nation status for Beijing, ushering her into the World Trade Organization and looking the other way as China dumped into our markets, thieved our technology and carted off our factories look today?

The self-sufficient republic that could stand alone in the world is more dependent than Japan on China for rare-earth elements vital to our industries, for the necessities of our daily life, and for the loans to finance our massive trade and budget deficits.

How does the interdependence of nations in a global economy look now, compared to the independence American patriots from Alexander Hamilton to Calvin Coolidge guaranteed to us, that enabled us to win World War II in Europe and the Pacific in less than four years?

That is only part of what's going on. Don't get me started about machine tools, and machinists, and tool-and-die makers. You don't wanna know.

Listen, All Ye Peoples...Free Trade Doesn't Actually Exist

First, let's define the term "free trade" in a nutshell for those not familiar with it: it is the policy of maintaining low or non-existent tariffs on imported goods. It is a shibboleth of mammoth proportions among certain segments of the American body politic, including, aggravatingly, a number of libertarians running under the colors of conservatism. Part of the theory involves a hoped-for utopia wherein if we lower our trade barriers, other countries lower theirs, and everybody enjoys the results of goods being produced where and by whom they can be made best and cheapest.

It doesn't work. It has never worked. Other countries always find ways to protect their markets. Pat Buchanan's column today is a short education in that fact.

How has China vaulted to the forefront in manufacturing, trade and technology? Export-driven economic nationalism. Beijing cut the value of its currency in half in 1994, doubling the price of imports, slashing the price of exports and making Chinese labor the best bargain in Asia. Foreign firms were invited to relocate their plants in China and told this was the price of access to the Chinese market. Beijing began looting these firms of technology, as she sent her sons to study in America. Industrial espionage and intellectual property theft became Chinese specialties.

And how has America fared in the new century?

One in every three manufacturing jobs we had in 2000, nearly 6 million, vanished. Some 50,000 U.S. factories shut down. We have run trade deficits totaling $5 trillion since NAFTA passed. The real wages of working Americans have been stagnant for a decade.

While China has resumed her 12 percent growth rate, the United States, with 25 million unemployed or underemployed, appears headed for a double-dip recession.

[snip]

For decades, America’s leaders have followed the Wall Street Journal ideology. We put a mythical world economy before our own economy. We put “global prosperity” before national interest. We forced our workers to compete, in their own country, against the products of foreign laborers earning a tenth of their pay. And we let in tens of millions of semi-skilled and unskilled immigrants, legal and illegal, to take the jobs of our countrymen.

And the Chinese? They put China first, second and third.

And who won the decade? And who is winning the future?

Inside the July 1 Washington Post is a small story about how the World Trade Organization finally ruled that European nations have been unfairly subsidizing Airbus — for 40 years.

While welcome, what good will it do now for scores of thousands of U.S. workers who built commercial jets for Lockheed and McDonnell Douglas, which Airbus took down, or Boeing, which was outsourcing jobs even before Airbus dethroned it as the world’s No. 1 aircraft manufacturer.

Read the whole thing. Really. You need to. I know you don't want to. Economics is booooooring, right?

But knowledge of such things is part of the price you pay to maintain your liberty and prosperity. You've avoided learning about it for decades, and look where the country is now...

Having trouble finding a job? This long-standing policy ought to be aggravating the livin' snot out of you.

"Real wages," by the way, means "adjusted for inflation." You keep hearing that aggravating line about the gap between the rich and the poor increasing? A big part of that has to do with stagnant real wages.

Short and Sweet on "Free Trade"

Pat Buchanan's column today is on "free trade." Again, if you're not familiar with the subject, don't confuse "free trade" with "free markets." They are not at all the same thing. "Free trade" is the policy of having low or nonexistent tariffs on imported goods. Used to be that the federal government was financed almost entirely by tariffs. Ran surpluses, too. The United States rose to be an economic colossus during this period.

You cut tariffs, you have to raise other taxes, or create new ones. Tariffs are a consumption-type tax. In their absence, you get income taxes--basically, taxes on economic productivity and success. Brilliant.

Now, as I often say for the benefit of those who, when tariffs are brought up, automatically shout "Smoot-Hawley and the Great Depression!" A) That's hogwash, we had a decades-long history of high tariffs without having a decades-long history of "great depression," and B) I'm not unaware that tariffs are not perfect. I favor the Fair Tax, which is not perfect either, but seems to me to be a better system that has some of the same salutatory effects as tariffs, that is, it creates a tremendous tax advantage to manufacturing and doing business in the United States. However, if I can't get the Fair Tax, I definitely want more tariffs and less income tax, capisce?

Now, on to the Patmeister's remarks--and I do recommend you go read the whole thing. Emphasis is mine and in bold:

How many know that every modern nation that rose to world power did so by sheltering and nurturing its manufacturing and industrial base -- from Britain under the Acts of Navigation to 1850, to protectionist America from the Civil War to the Roaring Twenties, to Bismarck's Germany before World War I, to Stalin's Russia, to postwar Japan, to China today?

No nation rose to world power on free trade. From Britain after 1860 to America after 1960, free trade has been the policy of powers that put consumption before production and today before tomorrow.

Nations rise on economic nationalism; they descend on free trade.

What is more, other nations practice economic warfare on us already. Somebody always brings up "retaliation." If there is a question of "retaliation," the question is when are we going to retaliate. Other nations protect their markets, either via their own tariffs, or through such mechanisms as rebating their VATs on exports. This global free-trade zone that some utopians envision does not actually exist, never has existed, and never will exist.

As Pat points out, the pitiful part is that our current crop of Republicans simply don't get this. It's pitiful because, if you didn't know, the same period of time that the United States was rising to manufacturing and national preeminence was also a period of time when the United States was under an almost uninterrupted string of Republican presidents, all of whom favored high tariffs. The Republican Party used to be the party of high tariffs; now, they won't touch 'em, despite the lessons of history.

It's a stinkin' pity.

A Faint Glimmer of Sense

Not that I expect that it proceeded from a real understanding of what is going on, but I was still gratified to see this:

U.S. to Impose Tariff on Tires From China

Oh, I know. You've been taught that tariffs are protectionism, and protectionism is evil.

It also happens to be one of the principle means by which economic empires are built, jobs--jobs worth having, as opposed to service jobs--are created, and real wages made to rise.

Real wages--adjusted for inflation--have been steadily declining since this country decided to go the "free trade" route. Seeing some move, almost any move, away from that policy is music to my ears.

Oh, but--oooooh! The article said we risked

...angering the nation's second-largest trading partner.

So (badword) what? China protects her own markets already. If anyone's retaliating in this scenario, it's us.

Ticks me off every time I think about it. Chinese workers are notoriously badly paid (though that pay is rising), safety is not a concern, pollution is not a concern, etc., and when U.S. firms have a hard time competing with companies that have little or nothing to worry about in terms of worker pay, worker safety, pollution, and so forth, and seek a protective tariff, we get all huffy and tell them to get "competitive." They get "competitive," alright; they move their manufacturing overseas. It's insane.

Tariffs, friends, were the principle means by which the U.S. government was financed right up 'til the time of the first World War, and remained important up 'til the seventies. Are you blind to the fact that this was the period of time during which the United States became the world's foremost economic power? Tariffs are a perfectly legitimate means of financing a government, every bit as legitimate as the hideous income tax, and they have a far better track record. They made an economic colossus out of Great Britain (which they then lost when they went the free trade route), they made an economic colossus out of the United States (which is suffering greatly by having gone the free trade route), and they brought Japan back from the economic death of World War II.

Admittedly, tariffs are not without their flaws. Even better would be enacting the Fair Tax, which, of course, has a very similar effect to tariffs in one way, that is, it creates an enormous tax advantage to manufacturing in this country.

If you're interested in more on the subject, read Pat Buchanan's The Great Betrayal and The Fair Tax Book and its sequel.