‘Free Trade’ vs. Actual Free Trade

The unlikely rise of Bernie Sanders and Donald Trump has focused public attention on an issue that hasn’t gotten much attention since the Civil War era – international trade.

One of the biggest controversies in nineteenth-century American politics was tariffs – with Big Business manufacturers for them, and farmers and producers of other commodities against them. Corporate behemoths wanted protection from foreign competition while ordinary consumers wanted lower prices. Furthermore, tariff revenue was used to enrich crony capitalists in the industrialized North: the federal government subsidized the building of railroads, canals, and other infrastructure while the beneficiaries of this largesse turned cheap tariff-free commodities produced in the South and West into high-priced manufactured goods.

These days, however, the “free trade” versus “fair trade” debate is seemingly reversed, with the big corporations supposedly favoring the former while the latter is championed by leftists like Sanders and right-wing populists of the Trumpian variety. In reality, however, nothing has really changed.

It would be very easy to institute a free trade regime in the United States, and you wouldn’t need a thousand-page treaty to do it. You’d only have to abolish all tariffs, subsidies, and other government-imposed impediments to the free passage of goods across our borders. That’s free trade.

But of course, other countries, not being as obliging to the wishes of their own downtrodden consumers, would not necessarily reciprocate. The native manufacturers of these countries, enjoying considerable political pull, would follow the example of our own nineteenth-century corporate titans and lobby for the imposition of protective tariffs. Here in the US, our own manufacturing giants would soon raise the alarm, political pull would win out over the welfare of mere consumers, and a tariff wall would go up. This is known as a “trade war.”

Absent an international system of free trade, these trade wars are a permanent feature of global commerce. The irony is that they are now being waged in the name of ‘free trade.” A perfect example of this phenomenon is the North American Free Trade Agreement (NAFTA), which Sanders and Trump have pointed to as the villain that decimated America’s industrial capacity and turned many sections of the country into hollowed out shells. And they are perfectly right to do so but perfectly wrong to attack NAFTA as the epitome of free trade. As Murray Rothbard pointed out over twenty years ago:

“In truth, the bipartisan establishment’s trumpeting of ‘free trade’ since World War II fosters the opposite of genuine freedom of exchange. The establishment’s goals and tactics have been consistently those of free trade’s traditional enemy, “mercantilism” — the system imposed by the nation-states of 16th to 18th century Europe….

“Whereas genuine free traders look at free markets and trade, domestic or international, from the point of view of the consumer (that is, all of us), the mercantilist, of the 16th century or today, looks at trade from the point of view of the power elite, big business in league with the government. Genuine free traders consider exports a means of paying for imports, in the same way, that goods, in general, are produced in order to be sold to consumers. But the mercantilists want to privilege the government-business elite at the expense of all consumers, be they domestic or foreign.

“In negotiations with Japan, for example, be they conducted by Reagan or Bush or Clinton, the point is to force Japan to buy more American products, for which the American government will graciously if reluctantly permit the Japanese to sell their products to American consumers. Imports are the price government pays to get other nations to accept our exports.”

A key ingredient of the new mercantilist formula is “foreign aid,” which is really just a subsidy for American exporters. When our client states get dollars in the form of foreign aid, these dollars are used to buy American products – and enrich the corporate interests who fund our free-spending politicians.

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