Foreign Trade Follies

After two years of pretending to be for free trade, the Clinton administration, backed by the Republican leadership in Congress, finally 'fessed up. In their dealings with China and Mexico, they shredded two centuries of economic wisdom, repudiated every principle of sensible economic relations, and kicked taxpayers and consumers in the teeth.

Absent the Nafta and Gatt debates, this would not be news. Real free trade has few friends in the capital. Just as D.C. interferes with the rights of business, it curtails and prohibits imports and exports, fiddles with exchange rates, and doles out foreign aid. Real free trade would mean no subsidies, no trade taxes, no loan guarantees, and, for Heaven's sake, no bailouts of foreign banks and governments.

Free trade would also require people like Mickey Kantor and Newt Gingrich to surrender their power over economic life. They would no longer be able to reward their friends and punish their enemies with trade interventions. That's why we should no more expect Clinton and the Republican leadership to give us free trade than we should expect them to stop taxing income and capital: it's not in their interest to do so. They can only be stopped by public pressure and threats.

At the least, they should not be able to get away with calling trade intervention a step toward freedom, as they did during the Great Trade Debate, 1993-94. As they sang of the glories of free trade, they cast opponents of trade treaties as protectionists.

But it didn't require the mind of Murray Rothbard to notice that Nafta and Gatt were mercantilist impersonators of free trade. These treaties were loaded with subsidies, regulations, loan guarantees, bureaucracies, and trade-war artillery. For the U.S. government, among the most import-restrictive in the world, to extol them as the essence of liberty was worthy of Orwell.

The free-market opponents of Nafta and Gatt were under relentless attack for opposing the treaties as pseudo-free trade. But the smearbund did not refute our arguments; in the tradition of wartime state propaganda, they called us isolationists and tried to shout us down as irresponsible wreckers of political consensus. Meanwhile, those willing to do the work of the state and its interest groups received lavish corporate subsidies and public approval by the Clinton administration and the Republican establishment.

The treaties barely passed, the political parties blew off their free-trade posturing, and the government began a round of unprecedented trade intervention. It wasn't a "trade war," because the victims couldn't shoot back. But in terms of expense to the consumer and taxpayer, it was the most costly protectionism in history.

The White House zoomed export subsidies on wheat sales to China, the same country it had accused of horrible trade crimes only two weeks earlier. Under the deal, the Chinese government will save $2 billion off the market price for American wheat. The difference is paid by the taxpayer, who is robbed by the Department of Agriculture, which buys the wheat and sells it again at a discount. By lifting demand and diverting resources, this policy also drives up the price of wheat for the American public.

Export subsidies have long been part of U.S. policy. (Stalin, for example, bought American wheat for less than American taxpayers could.) Such subsidies are designed to benefit particular domestic industries at the expense of the consuming public, and the elite's foreign-policy scheming. They are pure protectionism and should be stopped.

The U.S. government once claimed these subsidies as necessary because other countries employ them. That's like saying: "foreign governments are punishing their people to reward their special interests; we should copy them."

Mickey Kantor had told us such practices were a relic of the past, thanks to Gatt. That was just one of his tall tales, and this policy proves it. Notice too that the Chinese aren't accusing the U.S. of "dumping." They, unlike our trade officials who spend billions litigating anti-dumping suits, know a good deal when they see it. The Chinese welcome below-cost wheat so long as it lasts, but let them return the favor to U.S. consumers, and Kantor will throw a fit.

When our bipartisan government threatened to increase taxes on American imports from China by $1 billion, it brutalized Chinese industries not being subsidized. This is the world record for threatened trade sanctions, a dubious honor. And who would pay for these sanctions? You guessed it: American consumers of imported goods like Chinese bicycles, surfboards, and fishing rods – bikers, surfers, and fishermen lacking lobbies.

The justification for this threat of a tax increase (that's what higher tariffs are) was the claim that China failed to protect "intellectual property rights." But what exactly does this mean? Movie studios, for example, can't get the kind of overseas patent and copyright protection they want for their products, says Mr. Kantor, a former movie-industry lawyer.

But this is the risk of being an exporter. If Hollywood doesn't like the way the Chinese government handles these matters, it should lobby Beijing, bribe its officials, send Sharon Stone over, or simply shut up. It should not lobby Washington to play high-stakes games where American prosperity is put on the line. American consumers should not be taxed because big corporations claim their profits aren't high enough. Moreover, it's not the job of the U.S. government to be world policeman in this sense either.

The U.S., at the behest of powerful U.S. industries, ordered China to shut down 29 factories. When China mostly complied, it was not a victory for free trade, but an example of imperialism. The Chinese initially said this was an invasion of their national sovereignty, and they're right. No one put Mickey Kantor and his friends in charge of the laws of other nations.

The hidden reason for the sanctions is that China hasn't joined the World Trade Organization, the bureaucratic monster created by the recent Gatt treaty. Mr. Kantor wanted American consumers to be looted until the Chinese surrendered. If we needed evidence that the WTO and free trade are opposites – which savvy observers did not – this is it.

Those who trumpeted Free Trade were the same folks who brought you the $50 billion handout to Mexico, which was really a bailout of U.S. investment houses and big banks that risked their capital in a socialist country. When a foreign economy falls apart under real free trade, we'd say: tough. Capitalism is the profit and loss system. But under Nafta, profits are private and losses are socialized.

After the Nafta trade bloc was rammed through Congress, U.S. exporters were breaking piñatas and shouting, Olé;! But as the peso fizzled, so did their profits. In the old days, investors scrutinized the soundness of foreign currencies before investing, and took their lumps if they were wrong. Now, the more vulnerable their position, the more they can count on long-run profits at others' expense.

Never trust a government-to-government trade deal. They were rare in the 19th century when trade was largely free, but in our century of trade wars and real wars, they are more common than ever. Government-to-government trade deals ultimately subvert free trade, for their purpose is to reward favored business, prevent territorial competition for low-tax environments, and squeeze small business out of the international economy.

Every government intervention, here or abroad, skews the producer-consumer balance, makes economic life more uncertain, and strengthens the state. That's why economic life should be protected from any taint of politics.

In those few horrid weeks in January 1995, Clinton and the Republican elite implemented the hoariest mistakes of mercantilism, looted the consumer, put Wall Street on welfare, and expanded the power and reach of the central state.

Is there nothing to be grateful for? Well, Messrs. Clinton and Gingrich have stopped lecturing us on free-trade theory – until they start campaigning to spread the Nafta disease throughout the rest of this hemisphere, and the state's propaganda apparatus swings into action once again.