The Economic Nationalist

Robert J. Samuelson writes today in The Washington Post:

We may be about to shoot ourselves in the foot — or maybe the chest — on trade. In the name of “fair trade,” we may punish our own exporters. In 2005 worldwide exports exceeded $10 trillion. Since 1980 they’ve more than tripled while the overall global economy doubled. Like it or not, massive international flows of goods and services (aka “globalization”) underpin all modern economies. Supply chains have dispersed. We can accept this reality and try to benefit from it. Or we can rail against it. We seem to be edging toward railing.

Mr. Samuelson’s well written column argues competently for free trade. I recommend that you read it, because it helps one to understand better an important species of the logic which animates free traders. Here I explain why I believe Mr. Samuelson’s reasoning to be flawed and his conclusion, fundamentally incorrect.

Mr. Samuelson’s thesis is that the consequences of “fair trade” policy are potentially catastrophic for the United States. His imagery is strong:

We may be about to shoot ourselves in the foot — or maybe the chest — on trade.

He appears to understand that the United States is historically a protectionist nation:

Like it or not, massive international flows of goods and services (aka “globalization”) underpin all modern economies. Supply chains have dispersed.

But times have changed in his view:

We can accept this reality and try to benefit from it. Or we can rail against it.

Naturally railing against reality is seldom wise. When German Gen. Walther Model’s Army Group B launched the Battle of the Bulge in 1944, our Gen. Patton did not “rail against it.” He counteracted and defeated it.

To say that “supply chains have dispersed” is as to say that “Detroit has become a dangerous place to live.” Both statements are true; neither necessarily describes a good thing. No one I know denies that supply chains have dispersed. At issue is the question of whether the dispersal is good for America. (Free traders who at this point want to lecture me on “Economics 101″ should read this first and spare me the lecture. I’ve heard it. Repeating the lecture once more makes it no less shallow.)

Just last week Democratic congressional leaders signaled that they may oppose new trade agreements with Colombia and Peru. Who, if anyone, would benefit is unclear.

Actually, American factory workers who want to keep American factory jobs at American industrial wages find it pretty clear who would benefit.

[T]he agreements’ darkened prospects have already led to layoffs in Colombia.

If true, is this a matter for the Congress of the United States or the Congress of Colombia to address?

In the United States, manufacturers believe the agreements would expand their exports.

… and would contract their domestic sales. Mr. Samuelson and his manufacturers forget the second part of the sentence.

The record of past free trade agreements at stimulating U.S. industrial output is not exactly promising. The record of past protectionist tariffs at stimulating U.S. industrial output, on the other hand, is. To the extent that expanded exports today consist of machinery and equipment once used by American workers to build things in the United States, or consist of components to be assembled abroad (by foreign labor replacing American labor) and returned for sale in the United States, then the thing being exported is in fact an American job, isn’t it? If so, then are expanded exports really something Americans ought to celebrate?

We are dealing with something new here. It transcends traditional protectionism, which tries to shield specific industries and workers from imports.

No. Traditional protectionism tries to shield all American industries and workers from imports.

It’s trade obstructionism: a reflexive reaction against almost any trade agreement.

Well, Mr. Samuelson can call it what he likes. Here we call it Economic Nationalism. I suggest that Mr. Samuelson would be more accurate to describe the converse as “free trade: a reflexive reaction against almost any tariff.”

Not that reflexive reactions are always bad. Americans shared “a reflexive reaction against almost any” communist state not so very long ago. Did Mr. Samuelson disapprove of that reflex? In any case, economic nationalists do not react against “almost any trade agreement,” but we do react against almost any trade agreement intended primarily to advance the ideology of global free trade. If this reaction is what Mr. Samuelson is waiting for us economic nationalists to apologize for, then he may have to wait a very long time.

The idea is that much trade is inherently “unfair.”

Here Mr. Samuelson veers away from direct confrontation with economic nationalists, toward confrontation with fair traders. To economic nationalists, whether the trade is “fair” or “unfair” is more or less beside the point. We do not ask or expect the governments of Colombia and Peru to be fair to us; on the contrary, we expect them to try to get the best deal they can get for their own people. It is our own government which we expect to turn the deal down. Fairness has nothing to do with it.

The political alliance between fair traders (whose political home is in the Democratic party) and economic nationalists (whose political home is in the Republican party) is a fascinating topic which this blog means to address in a future article, but Mr. Samuelson may inadvertently be conflating the two factions.

Mr. Samuelson goes on to try to summarize the “fair trade” position and then logically to demolish it. Whether his fair trader is a straw man, I shall leave for you to decide, but his fair trader is not you or me. Eventually, however, Mr. Samuelson does return to debating economic nationalism head-on:

From 1980 to 2006, the trade deficit jumped from $19 billion to an estimated $786 billion, or from less than 1 percent of gross domestic product to about 6 percent. Still, employment in the same period rose from 99 million to 145 million. Job creation defies the trade deficits, whose causes lie largely beyond our control and have little to do with “unfair” trade practices.

Mr. Samuelson would be more correct if he said that the causes of job creation lie largely beyond our control. As far as trade deficits go, does he not believe that a simple tariff would go a long way toward controlling them? It had precisely that effect in the past. (To his credit, at least Mr. Samuelson does not claim that trade deficits don’t matter, or that they are actually good, as some fanatical free traders try to do.)

Faster economic growth in the United States than in many of our major trading partners has stunted our exports and increased our imports. Likewise, the dollar’s role as the main global currency — used for trade and international investment — has kept its exchange rate high. …

Except that growth in China has been much faster, these are good points, and I refer you to Mr. Samuelson’s article to read the rest of the paragraph, which is cogent and interesting. However, these points merely describe the current economic situation; they do not make the case that the current economic situation is good.

Globalization becomes a convenient explanation for many economic discontents, from job insecurity to squeezed living standards.

Hence, trade obstructionism.

But this is as to say, “Crime becomes a convenient explanation for many law-and-order discontents. Hence law enforcement.” That an explanation is convenient does not make it incorrect.

I believe cordially that Mr. Samuelson is a good and honest man, who appears fundamentally to misunderstand the economic nationalist’s position. The economic nationalist values national self-sufficiency, not as the only good but as an important good to be balanced against others. The economic nationalist observes that between 1812 and 1945 the United States typically levied a tariff of about 25 percent on all imports, and that these years gave America the greatest, most consequential industrial expansion any nation in history has ever enjoyed. The economic nationalist also observes that since 1973, U.S. per-capita industrial output has basically been flat, while American store shelves have filled up with foreign goods, most notably from China. The economic nationalist asks: since our federal government must raise revenue in one way or another, and since the revenue must come from the substance of the American people in one way or another, then what exactly is so wrong with reducing the income tax and making up the revenue shortfall by a tariff, with the significant incidental benefit of promoting American industry?

The timing could not be worse. …

Mr. Samuelson makes an interesting point about the timing. Refer to his article.

[American] exporters would face higher tariffs than many of their international competitors. “If we take ourselves out of the trade negotiation game, U.S. exporters will be the losers,” says Gary Horlick, a leading trade lawyer.

Well, okay. We should not be too hard on Mr. Samuelson, who at least has labeled his source accurately; but “a leading trade lawyer” who presumably stands personally to benefit from expanded trade agreements has little credibility to give unbiased expert advice. The fact that we have a trade deficit means by definition that it is not exports but imports which are principally at issue here; and the biggest, most lucrative market in the long term for U.S. producers is not an export market but our own market right here in the United States — the same market which today is making Chinese industrialists rich. Trading away preferred access to our own market in exchange for a few dollars in exports to India, or wherever, is not a good deal for us. It is this issue, plus the self-sufficiency issue, which Mr. Samuelson fails adequately to address.

Admittedly, counterrebuttal is possible, and I invite those who wish to counterrebut (including Mr. Samuelson, if he reads these words) to do so below; but I suggest that Mr. Samuelson and his fellow free traders really need to ask themselves why they support free trade so zealously, why they so reflexively reject the traditional balanced American compromise of tariffed trade. Mr. Samuelson reveals more than he realizes when he laments:

The world is quietly retreating from a multilateral trading system, in which all countries simultaneously reduce trade barriers. The latest multilateral trade talks (the Doha round) are suspended, perhaps permanently; meanwhile, there are now more than 200 country-to-country and regional trade agreements.

One detects here a love of the very idea of global trade agreements, a distaste for alternate agreements which — even if they actually liberalize international trade — aren’t so neat. It seems that the abstract idea of free trade itself is so mesmerizing that other considerations are never to be allowed to interfere. Let Mr. Samuelson and his allies love their mesmerizing idea if they must, but they are not to demand that the United States sacrifice its economic independence and the living standards of its people to the idea. The American people are not test subjects, but real people with real lives, who put our own country first and do not wish to pay the price to build their global vision. We Americans want to continue to trade many things with many people of many nations, as we always have done, but not all things at all times and at all costs. U.S. self-sufficiency and the health and vigor of U.S. industry come first. The American market is the greatest market in the world, and it is our market. Foreigners trade here not by right but by invitation only, as our guests. We already know that America prospers under the protection of a simple tariff, for that is our own history. To that old wisdom, our nation should return.

Your comments, pro and con, as always are welcome.

HJH

This entry was posted on Thursday, November 30th, 2006 at 5:22 pm and is filed under Trade. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.