Thursday, January 08, 2009

Protect first, Free Trade be damned

Is Free Trade something like Communism, that is, a religion or ideology that's supposed to work when all the right conditions prevail? Remember when Communist apologists used to explain that the Soviet model did not work because true Communism, the real McCoy, was never applied? Is the reason why the US finds itself in a deficit hole today due to the fact that real Free Trade has never been tried? Is Pat Buchanan right in his claim that Free Trade is a practice in which only fools would entrap their country? Here is Buchanan on the subject.

From column, "George Bush, Protectionist":

"I've abandoned free-market principles to save the free-market system," President Bush told CNN, defending his offer of $17 billion in loans to the Big Three "to make sure the economy doesn't collapse." Thus did Bush concede that protectionism, if a critical U.S. industry is in peril, must trump free-trade ideology. For in offering the bailout to GM, Ford and Chrysler, Bush, by omission, excluded BMW, Mercedes, Honda, Toyota, Nissan and Hyundai – though all operate auto plants here in the United States and all are feeling the same sales slump.

Bush may believe he has sinned against free-market principles, but he is following the path of his great free-market predecessor. Ronald Reagan, too, was not prepared to see Japan take down the U.S. auto industry, or steel industry, or computer chip industry, or Harley-Davidson. Believing Japan was dumping to destroy U.S. companies, Reagan put patriotism before ideology and imposed quotas on Japanese imports. He, too, was castigated by the same commentariat that is berating Bush.

Averting Chapter 11 for GM, which could lead to liquidation of the greatest manufacturing company in U.S. history – cutting America out of the premier consumer market of the 21st century – makes sense not only from the standpoint of politics, but economics, as well. For other nations, as the Washington Post reports, are far ahead of Bush in sheltering their industries and protecting their markets:

Moving to shield battered domestic manufacturers from foreign imports, Indonesia is slapping restrictions on at least 500 products this month, demanding special licenses and new fees on imports. Russia is hiking tariffs on imported cars, poultry and pork. France is launching a state fund to protect French companies from foreign takeovers. Officials in Argentina and Brazil are seeking to raise tariffs on products, from imported wine and textiles to leather goods and peaches, according to the World Trade Organization.

India has levied a 20% duty on soybeans to cut imports and protect her farmers. The United States has just filed charges with the World Trade Organization against China for "unfair support of its export industry – including the award of cash grants, rebates and preferential loans to exporters."

Awfully late in the game, Bush seems to have awakened to an ancient reality. When the tough times come, nations protect their own interests first, free trade be damned.

By traditional free-trade theory, a nation should import what it does not produce from the nations that produce it most cheaply. But in 1946, Japan produced almost no steel, no TVs and no cars. Instead of buying them from America, Tokyo subsidized its own steel, TV and auto industries for decades, and protected their market. Now, as Sony did to Philco and Dumont, Toyota, Honda and Nissan are taking down Ford, GM and Chrysler. Were the Japanese foolish to subsidize their industries and protect their market? Were we wise to let our TV industry be taken down, and watch our auto and steel industries driven to death's door?

To 1970, Boeing, Lockheed and McDonnell Douglas produced almost all of the world's jetliners. But rather than rely in perpetuity on Americans for passenger planes, Britain, France, Germany and Spain subsidized a socialist cartel, Airbus, that did not make a profit for 25 years and sold its planes for less than it cost to build them. That trampled all over free-trade theory, but it did kill Lockheed and McDonnell Douglas and almost killed Boeing. Were the Europeans foolish to create an aircraft industry and subsidize the destruction of Lockheed and McDonnell Douglas? Or were they wise to sacrifice today to capture the world's aircraft market of tomorrow?

Like Prohibition in Hoover's phrase, globalism is "an experiment, noble in purpose, that has failed." As we have learned, at a cost of $10 trillion in wealth wiped out on Wall Street, the nations of the future are not the consumer nations that pile up debt as they live on imports, but the producer nations that save and sacrifice and make the things the world wants.

Back in 2004, Buchanan wrote in his column, "Suicide by Free Trade":

Like companies that continue to make products no one wants to buy anymore, parties that persist in policies that are visibly failing – like LBJ in Vietnam – end up being abandoned.

If the GOP persists in this free-trade fanaticism, it is courting suicide. For the policy is not working in the eyes of the people. And if Republicans insist the returns from global free trade – a disintegrating dollar and a merchandise trade deficit of $550 billion a year and rising – are good for America, folks are going to conclude that Republicans are too out of it to govern. If the GOP does not offer ideas to halt the de-industrialization of America and the hemorrhaging of blue- and white-collar jobs, it is going to wind up on a landfill.

The problem with the columnists and think-tank scribblers who make up the intelligentsia of the GOP is not that they believe in free markets but that they worship them. They believe that if NAFTA, GATT, the WTO, and MFN for China mean production goes overseas, the market is telling us where production ought to be. And the voice of the market is to be obeyed, because that is the voice of their god. When Reagan, a devout free trader, saw the U.S. auto industry sinking, he did not let ideology interfere with a rescue. He imposed quotas on imported Japanese cars and saved Detroit, though he was denounced for apostasy and heresy.

Free-trade Republicans are like militant Christian Scientists who prefer to let patients die rather than call in a doctor – which is fine, as long as you’re not the patient. Americans believe that the interests of U.S. workers and their families come ahead of what may be good or best for the Global Economy. For years they have seen industrial jobs disappear. Now white-collar jobs are being outsourced. They want to know what Bush and the Republicans are going to do about it.

In his book, Where the Right Went Wrong, Buchanan cites Alexander Hamilton's guidelines that he believed would insure an economically independent nation. Buchanan observes that Presidents "from Washington to Madison to Lincoln to Theodore Roosevelt" followed Hamilton's prescriptions, which were:

• America must not be thirteen separate markets but a single free market. All state tariffs that impede domestic commerce are to be abolished. Free trade among the thirteen states is embedded in the Constitution.

• To ensure free trade among the states, a new national government has been created. How is it to be financed? With tariffs on imports from abroad, imposed at customs houses at the port of entry. All exports and all income of U.S. citizens are to be exempt from taxation. This prohibition was to be written into the Constitution.

• The tariff revenue extracted from foreign merchants will be used to build a new capitol, create an army and navy to defend us from imperial predators, and construct the roads, harbors, and canals that will bind us together as a people.

Buchanan concludes:

From Hamilton's mind and pen had come the greatest free market in history. But as Hamilton was, like Washington, an American nationalist, it was a national free-trade zone he had created. All Americans participated in that free market as their birthright, but British merchants, who had held life-and-death power over the colonies, would pay a price of admission – a tariff.

That tariff would finance a small but strong central government. And by raising the price of foreign goods, tariffs would stimulate our own people into building factories here in the United States. Strategic goal: Cut the ties of dependency to Europe and create bonds of commerce among Americans. The US economy was designed to weld us into one nation and one people, dependent upon one another. What was best for America, and for our people as a whole, was the basis of Hamilton's great idea.

Washington and Hamilton wanted to wean the republic off a reliance on foreign trade so Americans would never again be drawn into the wars of the old continent. They wanted to cut the umbilical cord to Europe and set out over the mountains for the West. They were statesmen, visionaries, and patriots.

See also: Will free trade or protectionism prevail?

1 comment:

John Sobieski said...

I am so glad to see the myth of free trade being a benefit being questioned more and more. Globalists like Bush believe that free trade is for the greater good and yes some will lose, but you must sacrifice some for the greater good. Really?