In Defense of Free Trade

Last week President Bush repealed the tariffs on steel imports that his administration put in place two years ago. Democratic candidate for President Howard Dean called the move, "another example of this administration playing politics with people’s lives." Several of the other Democratic candidates also strongly criticized the repeal and predicted negative economic and social effects. Some conservatives like Rep. Bob Ney (R-OH) also registered their concern.

In our July/August 1998 issue, Ramesh Ponnuru deflates Pat Buchanan’s arguments in favor of such protectionist policies.

It’s not Pat Buchanan’s fault his new book, The Great Betrayal: How American Sovereignty and Social Justice Are Being Sacrificed to the Gods of the Global Economy, has come out at an inauspicious time. Amid the hype about America’s current economic boom he may not make many converts to his view that foreign trade is destroying our jobs and depressing our wages. In his defense, job and wage growth have been weak in all but a few quarters of this boom. Besides, Buchanan never claimed free trade means the business cycle will never have an upswing.

More problematic are Buchanan’s specific predictions. Because we adhere to free trade while the Japanese practice economic nationalism, he argues, they prosper at our expense. Yet Japan has been flat on its back throughout the ’90s. Or consider North America: "Two years after nafta," Buchanan writes, "the predictions of its opponents had all come true." Oh? U.S. manufacturing employment is up since 1993; ditto for the automotive, electronics, and industrial machinery sectors. Buchanan predicted low-wage workers in Mexico would take American jobs; in reality, they’ve had a hard time keeping their own. So now Buchanan claims that nafta "created a booming new Sun Belt" in Mexico, yet somehow also spurred more Mexicans to abandon that Sun Belt for the U.S.

It’s not the only contradiction he’s forced into. He suggests both that the government is wrong to neglect unions (he says free trade has decimated them), and wrong to help them (complaining that they brought the Big Three automakers down). He says free trade has hurt Europe even more than us, and also that economic-nationalist Europe is eating our lunch (this within three pages). Truth to tell, Buchanan’s book abounds with examples of illogic, unreliable data, and tendentious history. While nobody expected him to produce a scholarly tome, this book is far below the usual standards for polemics. By its end, the case for free trade hasn’t suffered a single serious blow.

Part of the problem is that Buchanan seems to accept uncritically any sympathetic source. The late Sir James Goldsmith appears often in the endnotes, though his scholarly method included making up quotations. Ravi Batra, himself an old hand at bum predictions (in 1987 he wrote The Great Depression of 1990), is treated as a scholar. (Thankfully we are spared Batra’s demands for radical redistribution carried out by a dictatorship led by "warriors" and intellectuals.) Another frequent source, Jay Olnek’s Invisible Hand: How Free Trade Is Choking the Life Out of America, insinuates that free trade is bunk because Adam Smith had a homosexual affair with David Hume. (Olnek’s evidence: Smith ended letters with "Yours entirely," wore white silk stockings, and was depressed by his mother’s death.)

And then there’s Alfred E. Eckes, whose Opening America’s Market "is cited more often here than any other work." That book is a series of crafty misrepresentations of the historical record (see my review in Reason, January 1997), but the ones that mislead Buchanan most seriously concern the Smoot-Hawley tariff of 1930. He relies "almost entirely" on Eckes in disputing the conventional wisdom that the Smoot-Hawley tariffs of 1930, and retaliatory measures by other countries, exacerbated the Great Depression. First, Buchanan explains, the Smoot-Hawley tariffs were historically low since they applied to a small percentage of imports. But that is a ridiculous measure of the tariffs’ severity, since a high tariff will and is designed to reduce imports of the item to which it applies.

Smoot-Hawley didn’t cause trade wars, says Buchanan: few countries filed diplomatic protests after the law passed. But other nations did respond by raising their own tariffs, devaluing their currencies, defaulting on debts, and expropriating foreign industries. Smoot-Hawley didn’t bring on the Depression alone, but it helped shut down global commerce.

Buchanan worries a lot about America’s ability to compete with cheap labor abroad: "Why keep your plant here when you can manufacture at a fraction of the cost abroad, ship your goods back, and pocket the windfall profits that come from firing 20-dollar-an-hour Americans and hiring 50-cent-an-hour Asians?" But if low wages are so advantageous, why isn’t Bangladesh booming? Answer: because American labor is more productive. That’s why wages are higher here. Despite its superficial populism, Buchanan’s argument assumes American workers are paid more than they’re worth.

Buchanan alleges that U.S. wages have declined since 1973 as a result of the "global hiring hall," and that this has led to "falling birth rates and rising delinquency," teenage drug abuse, and promiscuity. But by 1973, the U.S. (as Buchanan elsewhere concedes) had already been practicing reasonably free trade for decades. Moreover, the falling wages argument (as previous articles in this magazine have pointed out) is mostly based on erroneous data promoted by left-wing advocates of income redistribution.

Buchanan also argues that free trade is unfair to U.S. businesses, because they must comply with burdensome safety, employment, and environmental regulations that do not apply to their foreign competitors. But while a plant manager in Bangladesh doesn’t have to worry about osha inspectors, he does have to worry about bribery, hazy property rights, judicial corruption, and political instability, just to mention a few other government-imposed costs. Which would most businessmen choose? Fly to Bangladesh and find out.

More fundamentally, it isn’t clear why Buchanan should want to "protect" burdensome regulations. For that is the logic of Buchanan’s position—as leftists who share it appreciate. By masking the consequences of foolish national policies, protectionism makes it likelier those policies will continue. Buchanan quotes John Maynard Keynes repudiating free trade, but ignores Keynes’ reasoning: protectionism lets activist governments experiment with their own economies without fear.

Buchanan writes that "America’s merchandise trade deficit, an all-time record of $191 billion in 1996, is a cancer. Either we cut it out or it will kill America." But protection wouldn’t necessarily cut it out. Imports would go down, but so would exports. Exporters would be hurt by an appreciating currency, by retaliatory protection abroad, and by increased sluggishness among protected firms that would suddenly have little incentive to look outside the cozy home market.

Buchanan’s promise to eliminate the trade deficit is, in addition, mathematically incompatible with his promise to make Americans invest less abroad and foreigners invest more here. Trade deficits are the mirror image of capital surpluses. America ran both for its first century—the very period in which Buchanan believes wise and statesmanlike protectionists were in charge. To acknowledge such facts would complicate Buchanan’s trade-as-warfare view, where markets are forever "invaded" and "captured." So he ignores them.

Buchanan also ignores the actual beliefs of the statesmen whose shades he repeatedly invokes. He argues that only foreigners, or consumers of imports, pay tariffs. Actually, everyone pays because domestic producers can raise their prices. Alexander Hamilton understood that. He also understood that producers are consumers. Buchanan praises Reagan-era import quotas for helping the U.S. steel and semiconductor industries but ignores the greater harm to U.S. industries that used steel and semiconductors. Hamilton rejected trade barriers in such cases. He also favored expanding the domestic market through mass immigration. This was the reigning policy during Buchanan’s Golden Age of the late nineteenth century. It wasn’t until Herbert Hoover that Buchanan’s policy of closing markets in both goods and labor was actually followed.

Buchanan calls himself an "economic nationalist," but his discussions of trade consistently subordinate the national interest to the particular interests of shoemakers, winter tomato growers, and other lobbies upset by foreign competition. For him, all parochial interests deserve protection, but not the interests of consumers. Buchanan approvingly quotes a source who suggests it’s decadent to want fresh fruit and vegetables year round. So Buchanan ends up arguing against economic change per se. No job should ever be lost in any industry—even if national employment rises, or even if output rises in that very industry.

Buchanan’s concerns, then, aren’t really economic, as he implicitly admits: "In a true nation, many things are placed on a higher altar than maximum efficiency." But he won’t face the trade-off between the "many things" he values and economic growth. He could have tried to persuade Americans they should give up considerable wealth for the sake of those higher things. That’s a respectable argument. Instead, he pretends his policies will add to the nation’s wealth.

If Buchanan’s economic nationalism isn’t economical or nationalist, is it at least conservative? He is at pains to say so, but his ideological categories slip through his fingers. Central banking is part of a sound nationalist system when protectionists propose it, but when free-trader Woodrow Wilson does, it’s proof of his liberalism. Free-traders are attacked for their "animus toward…empire," even though Buchanan’s newspaper columns regularly preach hostility to imperial adventures.

Buchanan repeatedly asserts that anti-nationalists and statists have espoused free trade. True. But does that prove nationalists and free-marketers should reject it? If that sort of liberalism-by-association is okay when Buchanan practices it, why does he cavil when critics attack his alliance with left-wing union boss John Sweeney? Buchanan admits that Friedrich List, the nineteenth-century German protectionist, "began to lay the intellectual foundation for wholesale government intervention and the state socialism of imperial Germany." And what are we to make of Buchanan’s use of sources like that old sycophant of Che Guevara, Regis Debray? Or his use of bogus statistics on concentration of wealth—that staple of left-wing propaganda?

Some of Buchanan’s remarks are indeed striking for their sheer liberalism. "Better the occasional sins of a government acting out of a spirit of charity than the constant omissions of a government frozen in the ice of its own indifference." So good intentions are what matter? "‘What is the market? It is the law of the jungle, the law of nature. And what is civilization? It is the struggle against nature.’ So declared [French] Prime Minister Édouard Balladur at the close of the gatt negotiations of 1993; he is right." Civilization, then, is the struggle against free markets.

Buchanan repeatedly refers to free trade as "treason" and "un-American." He proposes a different course for protectionist nationalists: Wrap yourself up in the flag. And then burn it.

Yet Japan has been flat on its back throughout the ?90s.

Can anyone here comment about the health of the Japanese economy? Why aren't we seeing people living in shacks in the park if their economy has been so dire for the last 15 years? Why is Tokyo still one of (if not the) most expensive place to live?

Buchanan also ignores the actual beliefs of the statesmen whose shades he repeatedly invokes. He argues that only foreigners, or consumers of imports, pay tariffs.

These crazy foreigners and their families have always been a problem. Take, for example, crazy Scot Irishmen like Buchanan. They couldn't make it in Scotland, so they move into northern Ireland and proceed to act like the place was always Scot-Irish. True to form, many can't even make a go of it in Ireland so they move to the US and turn right around and act like they were here even before say, the Spanish!

Don't get me wrong-- I know that it actually benefits the US to get new blood like Buchanan and his family. Their self serving self righteousness won't be such a problem for ever. After all, the future generations of Buchanans will probably wash out of the US (what with needing so much protection and all) and move to say, Romania where they can complain about the Hungarians.

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