Who Killed Free Trade?

Should free enterprise stop at the border? Of course not, and the attempt to make it so can drive us to ruin. Yet politicians are hammering free trade. Long-refuted myths are back in full force, and the voters are getting a mis-education in the economics of autarky.

The politicians criticizing free trade are merely acting and reacting to forces set in motion at the beginning of the Clinton presidency, and that stretch back to the mid-1980s and further. So rather than repeat long-established truths from classical economics and the Austrian School, let's look deeper.

The entire establishment has been attacking the ideal of free trade for years, claiming that foreign products and multinationals harm us, that we need industrial planning to ward it off, that we should browbeat foreign consumers for not choosing American products, that we need a New World Order to manage trade.

The whole point of free trade is that the private sector (producers and consumers) should have peaceful and voluntary commercial relations with the world, and the U.S. government should have nothing to say about it. Yet the Clinton administration disagrees, and it has practiced a trade policy that mirrors its statist domestic agenda.

Trade Rep. Mickey Kantor demanded that Japan open its camera shops to Kodak (even though its consumers like Fuji more). He demanded that China adopt and enforce U.S.-style copyright laws to benefit Hollywood. And he demanded that Japanese consumers put a Chrysler in every driveway.

Corporate privileges have also contributed to the backlash against free trade. Multinationals claim to favor free trade, but then demand subsidies and loan guarantees from the Ex-Im Bank, OPIC, the IMF, and the World Bank.

Few programs inspire as much public hatred as foreign aid. But who benefits the most from it? Not poor people abroad. Foreign and domestic politicians do, but most of the money goes to multinationals connected with the U.S. government.

Forgive me for not taking seriously the corporation that bills itself as "supermarket to the world" and warns of the dangers of protectionism, while benefitting from foreign aid and investment guarantees, not to speak of agricultural subsidies.

These aid recipients people are likely to cite Adam Smith and David Ricardo, and call any attempt to repeal such privileges and interventions "isolationist." They take a classical ideal and convert it into an instrument of graft and government privilege.

In normal times, people don't pay much attention to corporate salaries. But the middle class has been getting steadily poorer. Families can't afford to live on one income, and two and three incomes aren't enough to make families and communities economically secure. The reason? Taxes, inflation, and the wealth-destroying welfare-warfare state.

But politicians are anxious to fix blame on someone besides themselves. And it's always easier to grant government power than to take it away. And people are misled into turning to trade measures to stop the fall in living standards. There's a logical link between income-killing domestic interventions and protectionism, as John T. Flynn pointed out: "The first condition of a planned economy is that it shall be a closed economy."

The protectionist lobby has long pointed to corporate privileges and falling wages to make their case. Assisting them have been paleo-socialists like John Judis, liberals like James Fallows, neo-liberals like Michael Lind, and neo-conservatives like Edward Luttwak.

These men were among the first to call for the anti-trade industrial policy now hip among Republicans. The theory was that any country with lower wages than ours is a threat to our "economic security." Never mind that this would mean Oregon shouldn't trade with Mississippi.

Ill-trained journalists also threaten free markets, as they have since the Progressive Era. They don't know profits from losses, subsidies from tax breaks, or causes from effects. Journalism schools teach that a good reporter should expose corporate greed, but never notice the colossal racket called government. So much for "investigative reporting."

Free trade has an even more conspicuous killer in the Nafta and Gatt treaties. Though advertised as free trade, Nafta set up supranational boards, expanded bad laws to the entire region, gave billions in direct subsidies to Mexico, benefited government-connected big businesses and hurt small and medium-size firms, and linked the dollar to the peso via a "stabilization" fund, thus foreordaining the bailout of Mexico.

The Gatt treaty created a Keynes-inspired, Geneva-based World Trade Organization. Here was a trade deal that was openly touted, along with the IMF and the World Bank, as the third pillar of the New World Order. It had a Secretariat, a General Council, a Ministerial Conference, dozens of committees and councils, and dispute settlement bodies. Signers had to vow to pursue Keynesian fiscal and ILO-style labor policies.

Every statist from Wilson to Carter had tried to create a world trade tribunal, but none had succeeded. We were better off for it. In the post-war era trade was becoming freer, tariffs lower, and the international economy less and less regulated by governments. Protectionism and tariffs were a problem, but increasingly less so.

But the entire establishment united in favor of Nafta and Gatt, as it does for most increases in government power. Even worse, the establishment used the Big Lie technique and stole the moral and economic credibility of "free trade" to do it. Leading the parade was the Nafta Network and the Gang of Gatt: think tanks, newspapers, magazines, academics, and even Rush Limbaugh.

Working alone, principled libertarians exposed these depredations, including the Mexican bailout, in an effort to save the ideal of free trade from corruption. But against the will of the American people, both treaties were slipped through Congress and signed by Bill Clinton.

Both treaties have been a disaster, and every one of the rosy economic forecasts has proven wrong. Experienced businessmen tell stories of mountains of paperwork and having to attend classes to plow through new regulations. There are new fines, fees, waiting lists, quotas, and every other kind of roadblock. These treaties didn't make trade freer – and even if they had, it would have been the wrong means to a worthy end – but only increased government oppression of enterprise.

The backlash has arrived at last. Thanks to those who gave managed trade a free-trade cover, the target of public hatred has been the classical ideal of a global free market. Politicians in both parties are seeking to reimpose a system of trade restriction, against the rights of consumers and producers.

All this is dangerous for our liberty and prosperity. Trade restrictions, Ludwig von Mises argued in "Autarky and its Consequences" (1943), are the fulfillment of domestic economic intervention. When governments destroy prosperity, there are always politicians – FDR comes to mind – willing to take the fast track to economic stimulus, the long term be damned.

But as Stuart Chase, the New Dealer who coined the term, said, "National planning and economic nationalism must go together." He favored both, just as believers in free enterprise must reject both. The free market at home and abroad is not an option, but an indispensable basis for prosperity and peace, and the uncompromised policy of any truly civilized nation.