For decades, globalists and libertarian free trade ideologues have been telling us that free trade has been “good” for America, that it’s a traditional conservative/Republican policy, and that any suggestion that America should protect its industry – i.e. protectionism – is a Big Government policy and a betray of “free market principles”. Free trade is the religion of the CATO Institute, the Mercatus Center, the Heritage Foundation, and the so-called Club for (Corporate Profits) Growth, which should call itself the Club for Corporate CEOs’ Greed).
But they are wrong. Protectionism, not free trade, has traditionally been the policy of conservatives and Republicans, and it is the policy on which nations ascend economically; they descend on free trade.
Every nation which ever became a great power – from England under the Acts of Navigation, to Colbert’s France, to the US from 1861 to 1945, to postwar Japan, to China today – became such because it protected its economy (especially its industry).
Unlike Hamilton, Clay, and Lincoln, the free trade ideologues at the forementioned organizations never built a great nation.
Republicans won their first presidential election in 1860 (while also capturing the Senate) running on a pledge to institute tariffs to protect the industry. And they did. This nearly insulated America’s (or rather, the North’s) growing industry, allowing it to become the envy of the world. Successive Republican Presidents and Congresses continued these policies, shielding American industries with protective tariffs, thus allowing these industries to grow and leading America to overtake Britain (and the rest of the world) by all measures of industrial production (including coal mining and steel production) by the 1890s.
Protectionist tariffs on foreign products also allowed Congress to keep the books balanced and pay Civil War debts quickly while keeping taxes on Americans and American companies low. Before 1913, there wasn’t even any federal income tax.
America thus became the greatest industrial power on Earth, the envy of the world.
I said “successive Republican Presidents and Congresses”, because a protectionist economic policy proved itself to be not only economically successful, but also politically popular. From 1860 to 1924, the GOP – then known as the Party of Protection – put 12 presidents in the White House, versus only 2 Democrats.
By 1945, America, partially thanks to its protectionist policies and partially due to the destruction that WW2 inflicted on Europe and Asia, accounted for 42% of the world’s industrial production.
But then, something happened.
American political elites (including, increasingly, Republicans) caught the free trade virus and indulged in suicidal “free trade” economic policies.
The US joined the WTO organization, where it doesn’t have a vote, signed the GATT, and signed free trade agreements with many countries, opening its markets to their products while they kept their markets firmly closed to American goods and services.
Thus, the US stopped posting trade surpluses and, starting in 1971, began to run trade deficits which, since 1971, have been growing almost nonstop.
Big corporations, always greedily lusting for more profits and bigger salaries for their CEOs, began shipping jobs overseas.
By the 1980s, the situation was so dire that Ronald Reagan recognized the problem and asked the Congress to institute protective tariffs.
Yet, America’s slide towards the abyss on the skis greased by free traders was only slowed down, not stopped. In 1992, the US, at President Bush’s behest, suicidally signed NAFTA, opening its market to cheap Mexican products. In 1993, Republicans saved NAFTA from defeat by voting for it together with the pro-free-trade wing of the Democratic Party. Republicans literally rescued NAFTA from the dustbin of history (where it belongs) by voting for it – and thus own it.
The result? Millions of good-paying industrial jobs were lost, as factories were shipped to Mexico. Before 1993, the US had a trade surplus with Mexico. Since 1993, it has had a trade deficit with that country every single year.
In 1994, China began, on a large scale, its campaign to maximize its exports while closing its market to imports, and thus to steal Western industries, by devaluing its currency by 45%. Simoultaneously, tariffs on foreign products were hiked, and export rebates to Chinese exporters began to be provided, similarly to how they are provided in Japan.
(Japan has a 15% VAT rate on products sold on its soil, but it provides a rebate to its exporters for every product they sell abroad. So cars exported to the US face no American tariffs and are even rebated by the Japanese government, while American cars exported to Japan are taxed 15% as soon as they arrive at the Yokohama docks).
Yet, despite Chinese cheating on trade, the Congress – dominated by Republicans – gave China Most Favored Nation trade status, thus absolving Chinese products of most tariffs (while China did not reciprocate). In 2001, the Congress gave China that status permanently. In 2002, a Republican President allowed China to join the WTO. Thus, Chinese products enter America almost free of any tariffs or duties, but American products shipped to China are subject to steep tariffs.
Yet, Republicans, instead of learning from their mistakes, doubled down on their “free trade” policies. They gave Vietnam Most Favored Nation status in 2007. They gave President Bush an unconstitutional unilateral “expedited” negotiation authority to negotiate even more one-sided, unfair free trade agreements for dupes. They supported the FTAs Bush signed with Panama, Colombia, and South Korea late in his term.
In the 2008 election, all leading Republican candidates – McCain, Romney, and Giuliani – ran on free trade platforms.
The eventual Republican nominee, John McCain, even scaremongered people about “the siren song of protectionism” and went to a closed Ohio factory (which was closed because its owner shifted production overseas).
It didn’t endear him any voters, however. In the 2008 election, proud free trader John McCain was crushed 373-165, by the biggest margin of any Republican candidate since Barry Goldwater, losing even longtime Republican states like North Carolina, Indiana, and Virginia.
The election of Barack Obama probably gave some Americans hope that he would uphold his campaign promise to withdraw the US from NAFTA and to protect the US industry. He didn’t. He has barely been willing to impose tariffs on imported tires to save the tire industry.
With their own free trade mistakes costing them politically and the country economically, Republicans should have had, by 2012, learned that they were wrong and should have proposed a better policy, right? Wrong. Most Republicans continued to cling to their free trade ideology, as did the 2012 Republican nominee, Mitt Romney, who lambasted Obama for not signing any new FTAs for dupes (as if that were a bad thing), pledged to negotiate new FTAs, and firmly embraced free trade ideology. And although he pledged to designate China a currency manipulator if elected, and to enforce intellectual property laws, he wasn’t willing to do anything more than that, and even these half-measures earned him the ire of free trade ideologues such as the think-tanks and organizations listed above.
So, as the year 2012 begins to draw to an end, let us take inventory of 67 years of “free trade policies”.
They have destroyed the greatest industrial base the world has ever seen.
They have caused 55,000 factories to be closed and production to be shifted to countries where people work for slave wages and where there are no real environmental protection laws.
They have caused tens of millions of Americans to lose their well-paying manufacturing jobs and middle class worker wages to stagnate, in real terms, for over 2 decades.
They have brought about disastrous consequences for national security, as America is now dependent on foreign countries for essential things, even things essential for defense, such as Rare Earth Elements and the products made from them.
They have cost the Republican Party successive Congressional and Presidential elections, as former industrial powerhouses such as Ohio, Michigan, North Carolina, and Virginia – formerly red states – have turned against the GOP and become blue or purple states. Republicans have not win Michigan since 1984 and have lost both Ohio and Virginia in both of the last 2 presidential elections.
The GOP’s reputation as the Party of Protection has been tarnished and replaced by the reputation of a party that kowtows to big businesses and outsources jobs overseas.
America, formerly self-sufficient and producing everything in the world, now imports virtually everything it needs, from textiles and simple products to cars and Advanced Technology Products like computers and cell phones.
America lost her crown as the biggest exporter in the world to Germany in 2003, which itself was overtaken by China around 2010.
America’s trade deficits with Mexico, Japan, the EU, and the world at large are the highest they have ever been.
America’s trade deficit with China is the highest ever between any two countries.
And what were these trade deficits paid for with? Borrowed money. America is now the largest debtor in world history.
And to pay for lost revenue from abolished tariffs on foreign products, taxes are being hiked on Americans and American companies.
Can America be rescued? Yes, it still can, but there isn’t much time, and it will require a complete break with the free trade ideology and policies of the free trade ideologues running the CATO Institute, the Heritage Foundation, the Mercatus Center, and the Club for Corporate CEOs’ Greed. The US should:
- Immediately implement the Export-Import Certificates proposed by Raymond, Howard, and Jesse Richman. This means that no country would be allowed to export more to the US than it imports from America.
- Immediately impose a 25% tariff on all Chinese products imported into the US. China will then have a choice between letting American products into its market or financing the US Pacific Fleet.
- Strictly enforce intellectual property laws.
- Write, and strictly enforce, product quality standards on all imported products.
- Terminate the useless Export-Import Bank.
- Withdraw from NAFTA, the WTO, and the GATT.
- Abolish all loopholes in the taxcode and use the resulting revenue (as well as the revenue coming from tariffs on Chinese products) to cut taxes across the board for all Americans and all American companies. The corporate income tax rate should be no higher than 12.5% (it’s 35% today).
- Designate China as a currency manipulator.
Tens of millions of jobs will then be created and production will be shipped back to the US – because then, in order to sell products in the huge American market, you will have to produce things in the US. And foreign countries wishing to export to the US will have to open their own markets to American products on the basis of reciprocity.