By Ian Fletcher
Dan’s cheery (if somewhat bubble-inflated) statistics on the recent general prosperity of the U.S. are a mere distraction here, as nothing about these figures indicates whether free trade worsened or improved them. So I will not address them.
Some of Dan’s analytically-relevant assertions, however, are demonstrably false, like his claim that “trade has created better jobs for millions of Americans.” The reality is that the U.S. economy has ceased generating net new jobs in internationally-traded sectors. All our job growth is now in non-tradable sectors like waitresses and security guards.
Dan repeatedly confuses the benefits of trade with the benefits of free trade. Nobody on the protectionist side is proposing abolishing all trade, but we don’t need a trading system without reasonable limits in order to gain from a bit of foreign competition. We rejected pure laissez faire in our domestic economy a very long time ago; there’s no good reason to suppose it makes any more sense internationally.
It is no accident that the U.S. was historically a protectionist economy. The Founding Fathers understood the value of protectionism, so they explicitly granted Congress the power “to regulate commerce with foreign nations” in Article I, Section 8 of the Constitution. If protectionism is such a bad idea, why did the U.S. go from being an agricultural backwater to the world’s industrial superpower under this policy? Why did Japan go from bombed-out rubble to the second-richest nation in the world this way? Why is China growing nearly ten percent a year this way?
Dan’s claim that global poverty has declined due to free trade is bizarre given that, according to the World Bank, the entire net reduction in global poverty since 1981 has been in protectionist China.
Similarly implausible is Dan’s assertion that free trade “promotes… the spread of democracy, human rights, and peace” given that free trade (on America’s part, not theirs) is today massively enriching governments like that of China, enabling them to buy the bullets they need to oppress their own peoples and menace their neighbors. And human rights? Under the WTO’s free-trade rules, the sanctions imposed on South Africa in 1986 would now be illegal. And free trade has been the origin of shooting wars for a long time: that’s how Hong Kong became British.
Dan writes that “U.S. companies and their workers cannot prosper in the long run without tapping into global markets.” This is unlikely in light of the fact that corporate America and American workers were the world’s most successful in the 1950s and 1960s, when American exports were tiny in comparison to today.
Dan denies that our trade deficit is a sign of trouble on the grounds that it “reflects inflows of foreign capital.” This sounds good, but elides the fact that “inflows of foreign capital” means either a) Americans accumulating debt to foreigners, or b) Existing American assets being sold off to foreigners. Therefore it makes us a poorer nation by definition; this is a basic accounting identity.
The rest of the hard economics of Dan’s position appears to consist in counting up the (undenied) benefits of free trade, then assuming that these benefits “must” surpass free trade’s costs because of economic logic that is either:
a) simply assumed on the grounds of libertarian ideology.
or
b) based on cartoonish oversimplifications of how real economies work, outdated theories of trade that haven’t been updated since Ricardo’s 1817 theory of comparative advantage, and a failure to acknowledge that free trade economics takes for granted certain factual premises that are observably not true today.
I shall address the details in the next round.
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Ian Fletcher is an Adjunct Fellow at the U.S. Business & Industry Council, a Washington-based think tank founded in 1933, and author of the new book Free Trade Doesn’t Work: What Should Replace it and Why, available onAmazon.com. USBIC’s web site is at americaneconomicalert.org; the website for Ian’s book is atfreetradedoesntwork.com; Ian’s page at USBIC is at usbic.net/ianfletcher; he may be contacted at[email protected].
(For the free trade view, see Dan Griswold's response here)
