Dogmatic Adherence to Free Trade is Wrong

For all my adult life I’ve seen the arguments against any sort of Protectionism – and since the rise of Donald Trump, just more so. I understand fully the argument – the free flow of goods, capital and people tends to work to the benefit of those nations which allow such free flow. This is pretty obvious – the more we allow people the freedom to move about and do as they wish, the better, overall, things are. No one will ever be able to construct a rational argument in favor of just locking everyone out (and everyone in). But this does not mean that there is no argument to be made for Protectionism.

In 2015, the United States produced 79 million tons of steel – not a shabby number. But that number was 35 million tons less than in 1967 and wasn’t quite 10% of China’s 2015 production. The fact that China is producing north of 800 million tons of steel does indicate there is a large market for steel. In fact, the United States just in November of 2016 (ie, last month) imported a bit more than 2.2 million tons of steel. You can rely on it, that come war-time (real war – World War type of war) we’re going to need more than the 79 million tons of steel that we currently produce…and while I haven’t been able to find a break down of just where that 2.2 million tons in November came from, how much you want to bet that a very large portion of it came from China? You know – the nation we’d most likely find ourselves opposed to in a major war. I’m sure there’s some slack in our steel mills; I’m sure, that is, that we can ramp up production. But, how much? How fast? Of what types? How fast, to get down to nitty-gritty, can we increase production of ship and tank armor? A big war means we’d need a lot of tanks and ships. Could we build them?

I bring this up because, first off, steel isn’t something that most people think about – but the world produced nearly 1.6 billion tons of the stuff in 2015. It is a gigantic part of the global economy. And steel is the finished product. You’ve also got to add in all the coal and iron mining and a host of other feeder industries which are in existence just to get you that new car…or that new tank, depending on your need. Our elite leaders like to think in terms of the hot, new technological application – they don’t even think about things like how much steel we have, or how much we might need in an emergency. I also doubt they think of things like corn production, copper mining, finished lumber products…the things which are actually necessary for a functioning economy. A cool new ap to tell you how to get to the grocery store is fine, but it isn’t a necessity. When push comes to shove, you’d better have lumber, and corn, and steel.

I’d like to point out that for all the horror stories of how the Smoot-Hawley Tariff destroyed the global economy in the 1930’s, there still is the fact that the United States rose to economic dominance in the world while we lived in a Protectionist regime. We didn’t become a Free Trade citadel until after World War Two. I also note, with great care, that it was after World War Two that our domestic industry got smacked by global competition. There was some good in that – let’s face it that American cars were becoming pretty lousy until foreign competition forced domestic auto makers to improve. On the other hand, domestic autos were improving massively from the early part of the 20th century until the 60’s. Perhaps the fact that we wound up with the Big Three automakers had something to do with our hidebound auto manufacturing in the 1970’s? If lack of international competition is bad, then lack of domestic competition isn’t all that great, either.

But I also have never fully bought the notion that tariffs caused or prolonged the Depression. Just as I never bought the Progressive idea that rampant Capitalist greed brought on the Depression. I’ve figured for ages that everyone looking at the Depression was ignoring the elephant in the room: World War One and the Spanish Flu epidemic. Ten years before the Depression hit the United States, the world had just finished up slaughtering 10 million fit, young men in war. Add to that the 10 to 20 million fit, young men and women who were laid low by the Spanish Flu in the immediate aftermath of World War One. Add in things like the massive market for manufactured goods in Russia was gone (blasted away by war, civil war and Stalin’s determination to industrialize Russia via slave labor rather than foreign investment); the fact that there was a massive over-capacity in manufacturing (a lot of hot-house manufacturing capacity was built during the war), the fact that rather than building armies and navies the world was rapidly shrinking them and you get a situation where there was bound to be an economic contraction. Just in terms of the fact that upwards of 30 million young people weren’t placing demands on the global economy – weren’t having children, etc – because they were dead and you just know that there had to be a readjustment of the global economy. A readjustment which was bound to be painful – and which wouldn’t be ended until global population was substantially higher than prior to World War One.

The main thing here is to not look for a main thing – it was a host of factors, almost all of which were entirely out of control by anyone, which caused the Depression. Tariffs didn’t kill the economy and free trade wouldn’t have restored it. The economy, as a thing, is that which provides for the needs of the people…and if you suddenly lose 30 million of your most productive (and highest demand) people, you’re going to have a problem. Period. And that brings me to my point: a dogmatic assertion that Free Trade is always best is as asinine as a dogmatic assertion that Protection is always what is needed.

What is needed is a bit of thought – and thought coupled with an understanding that there are no neat and tidy economic prescriptions which will cover all eventualities. In general, Free Trade is good. But in the specific, we need a very large capacity to produce goods here at home – both for our own long-term economic well-being, but also in case of emergency when our trading partners are either at war with us, or simply not able to send us the necessary goods because of the stresses of war.

The most important thing, for me, in looking at the economy is to look to the needs of our people both in war and peace. What do we need to have? Do we have it? If we don’t have it, how do we get it? There are lots of things which will go into answering those questions – perhaps we just need to adjust our tax rates? Reform our regulations? Work out better trade deals with our trading partners? But, also, just perhaps – maybe we need to throw up a few tariffs in some crucial areas to make certain that we have the capacity to look after ourselves at need? As a Catholic, I’m big on Dogmas – you can check out the Catechism of the Catholic Church if you want to start running through them. But all that has, ultimately, to do with the one, immutable thing in the universe: God. Outside of God, everything is a bit fungible, to one degree or another. A low tax, low regulation, Free Trade economy is generally the thing you’re searching for…but it won’t do us the least bit of good to have low tax rates and no ability to feed our people by our own efforts in a crisis.

Don’t get hung up on hard-and-fast rules. Seek for what is best. Be willing to experiment. If one thing doesn’t work, try another. If we try to make dogmas out of transitory economic events, we’re just going to get burned. Remember, once upon a time it was said “what is good for GM is good for America”. Not quite like that any longer – in fact, an argument can be made (and has been made) that if GM had gone defunct in 2009, we might be better off. I think we would have been – because it’s not like no one would pick up the slack on auto manufacturing if GM went belly up. Someone was going to take over the famed names owned by GM and make new cars…and perhaps better cars for a lower price. Holding on to things like corporations just because they’ve been around for a while is silly – but just as silly as holding on to a notion about Free Trade which isn’t really supported by the facts of history…nor by the needs of our nation.

Advertisements

5 thoughts on “Dogmatic Adherence to Free Trade is Wrong

  1. Retired Spook December 24, 2016 / 11:05 am

    Don’t get hung up on hard-and-fast rules. Seek for what is best. Be willing to experiment. If one thing doesn’t work, try another.

    There’s certainly no guarantee that a Trump Administration will take this approach, but I think it’s a lot more likely than Hillary or any other Democrat doing it. Obama surrounded himself with academicians and life-long government bureaucrats with only 8% of his cabinet and high level staff positions occupied by people with private sector experience (the lowest by far of any modern president), and it showed in his anti-business, anti-growth policies. So far it appears Trump is going with a good mix of public and private sector people with several warrior class generals thrown into the mix. I don’t think we’re going to get business as usual the next four years.

  2. Amazona December 24, 2016 / 2:07 pm

    Smoot-Hawley was enacted in the middle of 1930 and modified after the War. You say “…there still is the fact that the United States rose to economic dominance in the world while we lived in a Protectionist regime…” yet I wonder if you are truly arguing that we “rose to economic dominance” in the 15-year period of 1930-1945.

    From your link to Smoot-Hawley:

    The tit-for-tat responses of other countries were understood to have contributed to a sharp reduction of trade in the 1930s. After World War II this understanding supported a push towards multi-lateral trading agreements that would prevent similar situations in the future. While the Bretton Woods Agreement of 1944 focused on foreign exchange and did not directly address tariffs, those involved wanted a similar framework for international trade. President Harry S. Truman launched this process in December 1945 with negotiations for the creation of the International Trade Organization (ITO). As it happened, separate negotiations on the General Agreement on Tariffs and Trade (GATT) moved more quickly, with an agreement signed in October 1947;

    While Smoot-Hawley did not DESTROY the world economy, it certainly contributed to its weakening. I think the lesson we need to learn is that going overboard in either direction would be a mistake.

    I don’t think anyone is for absolute tariff-free Free Trade. As you yourself point out, opening the automobile market to foreign-made vehicles created an atmosphere of competition that drove American car makers to improve their product just to remain competitive, and low tariffs on a variety of consumer goods allow companies like WalMart to not only provide those goods cheaply but also to employ millions of people.

    And we need to look at the role of tariffs in some of the issues you raised. For example, how much of our declining steel production is due to low tariffs and how much to increasingly restrictive regulations from agencies such as the EPA? Chinese steel is crap, or at least enough of it is to support that perception. Try to find a hand tool made in the US from US-made steel—it is nearly impossible, and the hand tools we can buy are, as I said, crap. A wrench made of Chinese steel might be fine for a kitchen tool kit where it is used twice a year for small projects, but it will not hold up under hard use. I have to assume the quality of Chinese steel used in industry is the same. We are building buildings using Chinese steel for the structure, and it makes a lot of people nervous. Chinese toys and dog food, just to name two categories of imports from that country, are proven to be made with no regard for safety.

    Tariffs imposed to contribute to the health and safety of the people (and their pets) is one thing. Using tariffs to artificially manipulate the market is another. It is easy to think we should just slap higher tariffs on such things to encourage US manufacture, but first we need to examine the manufacturing environment in the United States to see if it is reasonable to make stuff here, given regulations set in place by the new fourth branch of the government, its agencies.

    I tend to think that if we level the playing field, so US manufacturers can compete, freed of many of the onerous and sometimes capricious regulations imposed on them, Americans will choose to support American-made products without the need to herd them into it by making imports too expensive through tariffs. Imposing tariffs without balancing the equation by encouraging American manufacture would be simply punishing the American consumer and the American worker.

    I guess that gets down to a lot of my objection to many tariffs—it is the Nanny State trying to manipulate the economy and herd people into doing what it wants them to do.

    • Retired Spook December 24, 2016 / 3:07 pm

      Trump has said he will make it attractive for American companies to stay here and punish them for leaving, but he hasn’t said a great deal about tariffs on goods manufactured in other countries by foreign companies. Mostly what he’s talked about in that regard is to renegotiate existing trade deals where we’ve gotten the short end of the stick. I know Trump is going to disappoint me in some areas; I hope trade isn’t one of them.

      • M. Noonan December 24, 2016 / 3:57 pm

        I see him as our Negotiator-In-Chief…I think he’s smart enough to know that Protectionism, as such, is a long-term, losing proposition…but the threat of Protectionism is an excellent negotiating tool. The world needs access to our market far more than we need access to any particular market in the world. At the end of the day, we can produce almost everything we need right here at home…there are only a few raw materials which are not present within United States territory (and it is an oddity of China that even though their land area is only slightly smaller than ours, they are very much more resource-poor than we are; and even what they got isn’t all that good…Chinese coal, for instance, is lousy compared to American – or British – coal; China should be a major export market for American coal, but it isn’t. Why? These are questions we need answers to)…so, pushing our partners to be fair, with the threat of cutting them off from our market, is just good negotiating.

    • M. Noonan December 24, 2016 / 3:50 pm

      Probably 90% of our problem is taxes and regulations…but at the end of the day, we do need to ensure that we can take care of ourselves regardless of what is happening in the rest of the world.

      I hold to the view that as far as trade agreements go, we can’t really have Free Trade with a nation like Chine – being a corrupt, tyrannical regime, we can rely on their cheating as often as they can, as well as being certain that if any of our companies are doing business in China, they are forced by one means or another to pay bribes to carry on. This is why, I think, we get those cheap, Chinese goods…someone, somewhere, it taking a rake-off and so I end up buying Chinese-made pruning shears which snap in half when I’m trimming the rose bush. Sure, the consumer price for that is much less than I’d pay for a high-quality American (or Japanese, or German) product, but it wasn’t very helpful when I had to buy a replacement for a tool which should have had a lifetime measured in multiple decades. Quite often these days when it is time to buy tools, I go to swap meets and look for used tools. The things might be 30 or 40 years old, but they still work (never forget this time I came across a rivet gun which was made pre-1910 and it was still working perfectly…but, they don’t make rivets for it any longer). If we are to continue to trade with China, then we do need to make some adjustments; among them quality requirements so that we’re at least getting well-made products. Of course, I expect that if we did that we’d find that, all of a sudden, Chinese goods aren’t less expensive than American goods, once you factor in our cheaper energy, superior infrastructure and the cost of shipping Chinese goods to the United States.

      We must always defend ourselves against the desire to defend the buggy-whip manufacturers…some times, certain businesses simply have to go. But we must also defend ourselves against the dumping of under-priced, shoddy foreign goods which merely drive properly-priced, high quality goods out of the market.

Comments are closed.