Tag Archives: trade

The lies of free trade proponents

In his SOTU speech, Barack Obama announced that his Administration is (unconstitutionally and thus illegally) negotiating trade agreements with the EU and countries of the Pacific Rim. Free trade proponents – including Iain Murray of the pseudoconservative American Spectator – applauded him, as they are ideologically aligned with him. In defense of their (and his) free trade agenda, they have regurgitated their standard litany of lies about trade.

Murray falsely claims that:

“The benefits of free trade are many, and accepted by virtually all economists. They include reductions in the cost of living, greater choice and increased quality of goods, higher incomes on both sides, economic growth and, perhaps most important in an increasingly corporatist America, a reduction in the effectiveness of lobbying. Protectionism provides the reverse in all of these cases, and would be just as foolish now as when the Smoot-Hawley law deepened the Depression. (…)

However, that last benefit in the list I just provided has not escaped the eye of special interests. Indeed, most of the free trade agreements which America has negotiated in recent years have been heavily influenced by lobbyists, not only from industry, but also from the environmental and labor organizations. They have consistently insisted on inserting measures into the agreements that maintain protections for their interests and reduce the scope for the full benefits from free trade.”

All of his claims are blatant lies.

There are NO benefits from free trade. None whatsoever. It is protectionism that brings about the benefits he claims, not free trade.

How do we know it? From the facts – from the results of real life, not theoretical theses put forward by Murray and others living in their academic ivory towers.

Increased quality of goods? Don’t make me laugh. The goods that the US imports from China and other “developing” countries are of abysmally low quality, made from weak materials in a poor fashion, breaking down after little time of use, and many of them – including toys and food – are poisoned with lead (toys) or melamine (food). The problem is so grave that one American mother raised that question in a 2007 GOP presidential debate. Virtually anyone who has bought anything made in China will attest to the poor quality of Chinese goods.

Reductions in the cost of living? Rising incomes on both sides? Is that a joke? Since the ratification of the first “free trade” deals in the 1990s, the real wages and real income of low-income and middle-class workers has remained flat in inflation-adjusted dollars. The only Americans who have seen their incomes rise since then have been the wealthy – the CEOs of large corporations who are happy to ship jobs overseas (mostly to China).

Greater choice? China’s price-dumping, flooding of the US with extremely low quality goods, and refusal to implement any environmental or labor standards has undercut and undermined American companies and to the flooding of store shelves with Chinese products, leaving Americans with little choice other than these low-quality products.

Reduction in the effectiveness of lobbyists? Don’t make me laugh. It was precisely lobbyists – and no one else – who wanted and secured the passage of all free trade deals ratified by the US, from the WTO to the GATT to NAFTA, to Most Favored Nation status for China, to the disastrous KORUS FTA.

American workers and voters did not want these disastrous free trade deals. Indeed, they vehemently protested against them and urged their Congressmen and Senators to vote against them (especially against the KORUS FTA).

It was the greedy CEOs of large multinational corporations and their lobbyists on Capitol Hill who campaigned for and secured the passage of these disastrous (for America) deals.

Economic growth? That’s the most idiotic claim Murray has made. Free trade has done nothing but stymie US economic growth. Historically, the US economy has grown fastest when operating under protectionist (economically nationalist) policies: protective tariffs.

Indeed, this is what all history – of all countries – shows. It proves that protectionism is what brings about fast economic growth, while “free trade” (i.e. being a dupe who borrows money to buy foreign products and destroys his own industry) leads to economic stagnation.

Protectionism (economic nationalism) is the trade policy of ascendant economic powers; free trade, the policy of descending, declining ones.

EVERY country which ever became an economic power became one by protecting and nurturing its industrial base – England under the Acts of Navigation, France under Jean-Baptiste Colbert and Napoleon Bonaparte, Britain until the mid-19th century, Prussia under the Customs Union (1834-1871), unified Germany under Bismarck and his successors, the US from 1861 to the 1960s, postwar Japan, China today.

NO country ever became an economic power by indulging in free trade, which is only for dupes and idiots and leads to economic disaster.

The US became the world’s economic superpower – indeed, was once the economic envy of the world – because from 1861 until at least the 1960s it protected and nurtured its industry with tariffs that effectively barred most foreign products from the US and protected its industrial base while not hampering competition between domestic producers in any way (and antitrust legislation ensured that such competition would stay alive in the US).

Thus, the US became a world producer of everything, an economically fully self-sufficient country, supplying not just its large population but the entire world with all sorts of products, from alloys, to cars, to planes, to everything else. By the 1940s and the early 1950s, it accounted for 50% of the world’s industrial production, partially due to the damage WW2 inflicted on Europe but partially due to the protection of the American industry (which was indispensable in winning that war by producing weapons for the US and its allies).

This was because, from its founding until at least the 1960s, the US followed the preceipts of the Founding Fathers, especially Alexander Hamilton: Trade surpluses are preferrable to trade deficits. It does matter where things are produced. There is no free lunch. Manufacturing, not finance, is the nation’s economic muscle.

But today, the US hardly manufactures anything and has become dependent on foreign countries – especially China – on all sorts of products, including the necessities of life.

“Free trade” has been a total disaster for the US. Since 2000 alone, thanks to free-trade policies, over 55,000 factories across the country have been closed and relocated overseas, mainly to China, and 6 million good, well-paying manufacturing jobs have been shipped – mostly to China. The only reward is the dubious privilege of buying low-quality Chinese goods.

Before NAFTA’s ratification, the US had an annual trade surplus with Mexico; since 1993, however, it has had a trade deficit with that country every year and the 2012 trade deficit was the largest between the two in history. After ratification of the KORUS FTA, America’s trade deficit with South Korea jumped threefold in April 2012 alone. Our trade deficit with Japan is the largest ever between us.

America’s trade deficit with China is the largest ever between any two countries in human history: $300 bn in 2012.

Not just between the US and China, but the largest between any two countries on God’s green Earth in all recorded human history!

And yes, trade deficits do matter. A lot. They decrease the country’s GDP while increasing the GDP of the country you’re buying from. This is not surprising to anyone who knows economics 101: to be able to buy something, you have to earn the money to buy it – or borrow it. If you borrow money, you’re driving yourself deeper into debt. If you buy it with the money you’re already have, you’re transferring your income to the other guy. He earns money and you lose it.

If he sells you more than he buys from you, he makes more money at YOUR expense than YOU do at his expense. In other words, on net, he earns money at YOUR expense: he takes money from you, while you lose money.

Producing goods creates jobs (all goods have to be made by someone). If you buy goods from a foreign country, you’re creating jobs in THAT country rather than yours, and increasing the income of THAT country rather than yours, while you lose money and jobs (or, at minimum, the opportunity to create jobs at home).

That country gains and you lose.

If you buy more from abroad than you export, you’ll have to borrow money to buy those things, thus driving yourself deeper and deeper into debt.

Those “economists” who support free trade clearly don’t even know Economics 101, or the Basic Facts of Life 101.

Free trade has also been a political disaster for Republicans. They’ve been complicit in its making, indeed often leading the campaign for it, and helped destroy most of American industry. Might the wiping out of most factories in the Midwest and the Northeast have had anything to do with Republicans inability to win those states and their foolish advocacy of free trade?

Illinois and Michigan haven’t voted Republican since 1984; Pennsylvania, not since 1988; Ohio, not since 2004.

By contrast, from 1860 to 1924, Republicans – then known as The Party of Protection – put 12 presidents only in the White House. The Democrats put only 2.

In short, the claims of Iain Murray and other free traders – none of whom have ever built a great nation – are blatant lies.

The New China Syndrome

When hearing a number of conservative (some real, some alleged) figures speak about China, the tone and rhetoric are usually a mix of concern, anger and fear. Donald Trump, one of the alleged conservatives, has spoken at length on the issue, which is probably a chief reason why he gained some traction while contemplating a run for president. Trump has lambasted China for manipulating their currency and “stealing our jobs”. To be clear, China has seen a number of American companies open up facilities there; but I hesitate to calling it “stealing” when we generally push our businesses their way. China, a partially communist country, has a lower corporate tax rate and much fewer regulations than the supposedly capitalist United States. In that sense, its our fault, not their's.

Does China manipulate their currency? Yes, they certainly do. Do we manipulate our currency? Yes, we certainly do. Is the federal reserve endlessly printing money economically beneficial or does it have a brief minor stimulative effect before damaging an economy long term? Most people would agree that its the latter. So if us doing it has negative effects on ourselves, how does China do it to their long term benefit?

China also gets talked up by President Obama as a nation that has invested in “green energy” and that if we don't also invest in green energy, we'll fall behind them. First, China does have a fair amount of factories producing green energy products; and not coincidentally GE has exported a large number of jobs there (yes, that’s correct, our President's chief economic adviser has outsourced thousands of jobs overseas). China also actively builds as many coal power plants as it possibly can. According to the BBC, China is the world's worst polluter; this is not a nation we should always take our cues from. In 2007, a study released by the World Bank has shown that 760,000 people die yearly from pollution related illnesses. But back to green energy briefly, I don't want to insinuate that I hate green energy, because I don't. What I hate is paying billions yearly to companies that produce products that don't work or people don't want. If green energy had such great potential, why do companies need the government to invest in it, wouldn't investors be lining up to make money in such a terrific venture? I am still curious what the realistic expectations from when solar/wind has been sufficiently explored; as far as I know, they aren't expected to be a main source of energy, just complimenting main energy sources. My next question is, why don't we let China dump tons of money into green energy, and if they come up with a product that works, our companies will begin improving on their methods and creating a better product. If not, and so far green energy has been a money sink, then the joke is on them; they've wasted billions of dollars in mal-investments.

Another fear is that China's military is growing stronger and has started to use advanced technology. China spent $100 billion last year on their military budget, the US by comparison is proposing a national defense expenditures of over $950 billion. In terms of money spent, they won't overtake us for a long while. At the moment, China has no bases outside of its borders and hasn't expressed plans to do so. If in the event this does happen, one can expect conservative talk radio to be paranoid and abuzz for weeks, but in my opinion this offers us an opportunity. China has been pressuring North Korea to quit threatening everyone with nuclear war, being as they are in the region, they have quite an interest in stability. If China is dumb enough to ever want to put military bases in locations that we currently police, we can give them the reins to the costly burden we currently carry. If they want to spend tens of billions to put bases in the Korea's and such, we should not only let them, we should encourage them. If needed we can pull the “rope a dope” and fund insurgents to bog them down, however we should be grateful we've found an idiot willing to pay the full cost of an expensive liability that yields no tangible benefits.

Lastly, another of Trump's main issues was the trade war with China. Trump proposed a 20% tariff on Chinese imports. Now, if our goal was to stick it to them, that would be one way of doing it. The problem though is that the goods purchased here by our lower income citizens would cost 20% more, a burden which they cannot afford. Worse, as was caused by the Smoot-Hawley tariff under Hoover, a trade war would likely ensue and China would put a 20%+ tariff on their imports; harming not only our companies but our diplomatic relations. So the best analogy I can think of to this whole 20% tariff on Chinese goods would be comparing it to the Middle Eastern punishment for thievery, which is cutting off the thief's hand. Except when the enforcer went to cut off the thief's hand, he accidentally cuts his hand off as well. Actually its a bit worse than that, because the Great Depression saw the harmful consequences of protectionism and trade wars, so really it'd be more like the enforcer seeing an instructional video of what to avoid doing when severing hands, and still screwing it up anyway.

Do not conclude from this writing that I am a fan of China. As a libertarian, I despise a collectivist state that crushes the individual and China assuredly is that. It is natural for Americans to resent China, as they see our nation's power and prominence transfer to China, in a tragic “changing of the guard” ceremony. But trade agreements only work if they are beneficial to both nations, and our trading with China is mutually beneficial. Spiting them will only cause diminished prosperity in both nations and besides, you don't really want to get on the bad side of your main creditor/a rising power. As Calvin Coolidge once said, “Don't expect to build up the weak by tearing down the strong”. China's rise doesn't have to be America's fall. Be skeptical of all governmental action, foreign and domestic, but don't let irrational fears cause irrational actions.

America Goes Protectionist, Echos 1930’s Era Actions

cargo shipStill thickly in the middle of the biggest economic catastrophe since the great depression, American policy makers are making anti-free trade decisions that are eerily similar to the protectionist moves made during the depression.

The A.R.R.A. (stimulus bill), has provisions in it that only allow the money to be spent on “manufactured goods” that are made in America.  While a welcome gift to the American steel industry and steelworkers union, reaction from foreign trading partners much colder.  American companies now face the proposition of being blocked from bidding on contracts in other countries.  Canada and the EU have raised extreme objections to the move and are considering two counter-measures.  First, they have petitioned the World Trade Organization, which is largely for show, but also allows them to take the second action – putting tariffs on American goods going into their countries.  By petitioning the W.T.O., those countries are not vulnerable to claims from the U.S. that they are engaging in unprovoked anti-trade actions.

Caterpillar Tractor is undertaking an effort to be involved with major projects in China.  Due to the recent placement of a tariff (tax on imported goods) on Chinese tires, the American heavy equipment manufacturer may find it much tougher to sell it’s machines in the rapidly-growing Chinese economy.  China has already filed a grievance with the W.T.O. and is now moving to place counter-tariffs on American imports of chickens and auto parts.

Highly-controversial agricultural subsidies have existed for decades.  Some farm subsidies are actually larger than the cost of the product itself.  The U.N. found in 2001 that the U.S. subsidy on a pound of cotton was more than 52 cents per pound.  It costs just above 20 cents per pound to grow cotton in some countries outside the U.S.

Mercantilist policies are also being applied to our neighbors to the south.  Restrictions on Mexican trucks on U.S. highways are making it more expensive for Mexican manufacturers to put their goods on American shelves.  While not a direct tariff, it has the same effect.  How long will it be before American goods are less welcome in Mexico?

Protectionism was a major factor in turning the 1929 recession into the great depression.  It was the leading factor into making the U.S. depression up to 5 years longer than in most other nations in the world during that period.  By taking the same steps, making the same mistakes, and being naive of history, we could be inviting the next great depression.