The Mises Institute monthly, free with membership
April 1996
Volume 14, Number 4
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 miseducation 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 paleosocialists like John Judis, liberals like James Fallows,
neoliberals like Michael Lind, and neoconservatives 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.
-------------------------------------------
Llewellyn H. Rockwell, Jr. is president and founder of the Ludwig von Mises Institute
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