Is protectionism America's future? Pat Buchanan praises Bush's barriers

"For the first time in more than two decades, trade barriers are moving in the wrong direction. This isn't the 1930s ... but Pat Buchanan is one happy camper these days."

So writes Steve Moore in a long and anguished column in the Washington Times titled, "A Comeback for Protectionism." A free-trade purist at Cato Institute, Moore is right to be alarmed.

Americans, souring on what global free trade has done to them, are again turning to the philosophy that converted America from 13 rural colonies into the mightiest industrial power the world had ever seen – in a single century.

The economic patriotism of Hamilton and all four of the presidents on Mount Rushmore is getting a rehearing for the best of reasons. Free-trade globalism has failed America.

The numbers do not lie. After throwing open U.S. markets, we are now running a $500-billion-a-year merchandise trade deficit, largest in human history, equal to 5 percent of our $10 trillion gross domestic product. And what has a decade of these soaring trade deficits produced?

First, a farm crisis. American farmers are the most efficient on earth, but they cannot produce food for less than in foreign lands where the environmental rules are lax, and the labor is plentiful and cheap.

While America still runs a modest surplus in farm goods, it has been shrinking under free trade. That $200 billion farm bill Moore bewails is simply a bailout of U.S. farmers whom free traders sacrificed on the altar of their Moloch, the Global Economy.

Second, a crisis in manufacturing. U.S. companies have been closing factories, shedding workers and building plants in Mexico and Asia. As goods produced by $2-an-hour foreign labor poured into the United States, they have killed off many remaining U.S. factories. America has been de-industrializing as rapidly as the British, before German submarines finally awakened the Brits to the truth that free trade is not free.

Third, a growing U.S. dependency on foreign producers, not only for oil but the necessities of our national life and national security.

Fourth, these mammoth trade deficits have poured hundreds of billions of dollars into overseas coffers, that foreigners have used to buy up U.S. assets. According to Bridgewater Associates, foreign-owned U.S. assets rose from 33 percent of U.S. GDP in 1990 to 78 percent today. Foreigners now own 22 percent of U.S. corporations, 24 percent of U.S. corporate bonds and 48 percent of our liquid Treasury market.

But trade deficits of 5 percent of GDP cannot continue indefinitely. Eventually, a currency begins to fall, as has been happening to the dollar, and the price of the foreign goods on which America now depends rises. And as prices rise, Americans buy less from abroad.

The problem? The world has become dependent on the American consumer. But, if Americans can no longer afford all those foreign goods, and they begin buying less, these nations will go into recession and be unable to service their foreign debts.

In 1997-1998, the United States, with a bull market and a roaring economy, bailed out the bankrupt regimes of Asia and Latin America. By buying their exports, giving them IMF loans and running a huge trade deficit, we pulled them out of the ditch and onto their feet.

But America's economy is no longer booming. With the dollar falling, we cannot afford to forever buy up foreign goods. And with the U.S. budget now in deficit, the willingness of Americans to bail out foreign bankrupts is going to disappear. We may just be headed for the terminal crisis of the Global Economy.

Yet, the president is now being bashed for the most sensible decision he has taken to put America first: the imposition of tariffs on foreign steel being dumped into the United States, which had put 30 U.S. steel companies in bankruptcy.

What happened? The EU, its huge trade surplus with America at risk in any trans-Atlantic trade war, chickened out and backed down. The president prevailed. The EU will not impose retaliatory tariffs. Smart fellows.

As for the U.S. steel mills Bush sought to protect, consider this item buried inside the free-trade Wall Street Journal.

Under a headline, "Steelmakers Post Improved Results for 2nd Quarter," a reporter writes: "Buoyed by import tariffs, the country's two largest steelmakers reported vastly improved second-quarter results, as mills operate at nearly full capacity and prices rise.

A comeback for protectionism?

Stephen Moore

     One of the contributing factors to the market meltdown is the bearish policy environment in Washington — which is not reassuring investors, but chasing them out of the market. The rise of protectionism is a dramatic case in point. For the first time in two decades the free trade movement is in retreat. And it has been put in this position by an American president who keenly understands and eloquently articulates the virtues of free trade.
     One would like to believe that if George W. Bush knew three months ago what he knows today, he would never have foolishly agreed to impose 30 percent steel tariffs. By doing so, he has put at risk the fragile majority in the U.S. Congress for further trade liberalization. As one union official told the American Prospect magazine, "The Senate was put in play [on trade issues] by the steel deal. When Bush put tariffs on steel imports to help him in Ohio, West Virginia and Pennsylvania, the free-trade Democrats began to wonder, 'Are we the last believers in free trade?' " Not surprisingly, in the House and Senate votes for free trade are disappearing in the wake of Mr. Bush's politicization of free trade.
     The disgraceful $200 billion farm bill was an equally devastating setback for the free-trade movement. By signing a bill that massively raises U.S. government farm support subsidies, Mr. Bush has severely weakened his ability to cajole European and Japanese governments to lower their own trade restrictions and subsidies. Under the new farm bill, as much as 30 to 40 cents out of every dollar farmers earn will come from Uncle Sam.
     As the Economist magazine correctly noted in critiquing the U.S. farm bill: "The Europeans, notoriously protective of their own agricultural interests, are likely to grab any excuse to avoid reforms that might hurt their politically powerful farmers." Now they have one. Meanwhile, retaliatory steel quotas are in the works in Japan and Europe as well. The U.S. has temporarily surrendered the moral high ground on the movement to allow tax-free global commerce, and it could take years to regain the ground that has been lost.
     Mr. Bush's faltering on free trade couldn't come at a worse time. The global trading system is under assault. As the chart below shows, last year, the volume of world trade declined for the first time in two decades.
     Part of this was due to depressed demand resulting from the global recession. But a much more malignant factor is at play here: the re-emergence of protectionist trade barriers around the world.
     The rise in worldwide tariffs, quotas and government subsidies to domestic industries is arguably the most dangerous new development in the global economy. It has been the expansion of free trade and the chopping of tariff barriers over the past quarter-century that has helped propel the dramatic rise in living standards and wealth creation in the U.S. and much of the rest of the world. Nations that have entered the global trading marketplace have exploited the magical force of Adam Smith's comparative advantage to increase growth and wages by producing what they produce best.
     This chiseling away at trade restraints drove down worldwide costs and prices of everything from bananas to vaccines, to microchips to potato chips. As a result, products that once were only available to kings and princes and multimillionaires became affordable to even the poorest Americans and to the middle classes of most other nations. When it comes to advancing worldwide consumer sovereignty, nothing works like free trade.
     By politicizing free trade, President Bush has put the world economy at risk. The 20th century should have taught us the potentially catastrophic consequences of the breakdown of world trade and the rise of protectionism. The global trading system shut down in the 1930s as many nations, including the U.S., doubled and even tripled tariffs and import quotas. In the U.S., import duties rose to about 50 percent of import prices by the late 1930s. The result was a global depression and a plunging of living standards here and abroad.
     For the first time in more than two decades, trade barriers are moving in the wrong direction. This isn't the 1930s by any stretch of the imagination, but Pat Buchanan is one happy camper these days. This bad news arrives just at a time when the wobbling world economy is most in need of a shot in the arm.
     My colleague at the Cato Institute, Brink Lindsey, who has just published a terrific book called "Against the Dead Hand," says the Trade Promotion Authority (TPA) legislation that Mr. Bush seeks and was just passed out of the Senate, is so weighed down with environmental and labor side deals (the Democrats want free health benefits for laid-off workers), that it may be worse than no deal at all. In the House, where TPA passed by one vote several months ago, support for the free trade agreement is now in a full meltdown. Alas, this is the inevitable price to be paid when the president puts politics over principle on free trade.
      The good news is there is still time for Mr. Bush to re-establish his free-trade credentials. In 1982, Ronald Reagan bowed to electoral politics and agreed to slap auto import quotas on Japan. This solitary sin didn't prevent Mr. Reagan from becoming the most important political leader for free trade in the last half-century. George W. Bush is similarly an instinctively committed free trader in his gut. He has to start following his gut and stop listening to half-witted political advisers who keep telling him that free trade is an electoral loser. It isn't. The last four U.S. presidents were elected on a free-trade platform. That includes, of courses, George W. Bush. It's time for his actions to support his free trade rhetoric — before the world trading system begins to crater.

      Stephen Moore is a senior fellow at the Cato Institute.
LINK

You are a rabble-rouser. LOL.

You realize then, what your prompt reply implies? (no taking the 5th!)
For the record, my own defnition of Bush's "base" is every living voter he got in 2000. Those are the votes he needed to win last time, and objectively, the most likely votes he'll get this time. I was one of the former, and stand a decent chance of also being one of the latter. I think the arguments over which of his 2000 votes are more "base" than some others are quite amusing.
On some of the protectionist and free market issues, I'm not hyper-doctrinaire. The steel tarrif is unfortunate, but doesn't bug me in principle, because I don't want to be in the position of being completely dependent on foreign sources of such a crucial commodity. In addition to the national security concerns, I'm also not in such a rush to plunge into a wholly post-industrial economy.
I don't like farm bills, though... they're nothing but vote-whoring.
Not that the steel tarrif won't play well in the Rust Belt, but at least we're not paying Sam Donaldson not to produce cylinder heads.

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