Trade and Trade-Offs

The Eden Treaty, named after the British negotiator William Eden, was signed in 1786 between France and England. It is notable for a few reasons. One is it reflected the new ideas from the Physiocrats, who promoted a more liberal trade policy between countries. Adam Smith was not technically a Physiocrat, but he aggressively argued against Mercantilism. In fact, he coined the term “Mercantilism” in the 18th century, to describe the prevailing polices of the time.

That’s the other notable thing about this deal. France and Britain were longtime rivals and both countries were committed to Mercantilism, yet they struck one of the first “free trade “deals or at least the first deal premised on philosophy of free trade. Even today, many free market types will argue that trade can overcome even the bitterest of rivalries. People like making money more than they like making trouble, so the theory goes. This trade deal is proof of that.

The most notable part of the deal is that it was a disaster for France. Soon after the deal was signed, there was a flood of British manufactured goods into France. Importation of British goods doubled. This put enormous pressure on the already distressed French industries, setting off riots and revolts. Naturally, this put pressure on the already strained relations between the provinces and the crown. Most historians count the Eden Treaty as one of the contributing factors leading up to the French Revolution.

What the French government did not understand when negotiating the treaty is that trade is not a static thing. Even if the French could vastly increase their sale of wine and linens to Britain, in order to offset the import of British manufactured goods, there would still be significant economic dislocation in the French economy. The wine merchants would be happy, but the French cotton mills in Normandy would be devastated, which is why riots broke out there soon after the deal was implemented.

Trade between nations can be a very good thing for both nations. It can be a terrible thing too. It’s not always easy to know in advance. World trade rapidly expanded in the 19th century as shipping costs plummeted and trade barriers fell. Not only did European economies boom, the quality of life for their citizens rapidly increased. In 1870, British life expectancy was 41. In 1913 it was 53. Food prices plummeted by 80%, thus eliminating malnutrition for most of Europe.

It was not just economics that changed with the global trade boom in the 18th century. Cultures changed too. Close to half a million foreign-born laborers worked in the heavy industries of French Lorraine and Germany’s Ruhr. It’s impossible to overstate the radical nature of this. For most of human history, the mass movement of people meant war. Suddenly, it was encouraged. Trade was so good that smart people were convinced it had made war impossible.

Of course, not long after publication of The Great Illusion, war broke out in Europe. Over the next five years the industrial powers of the world tried very hard to exterminate one another. Was trade the cause of war? Not exactly, but trade was not a magical solution to the age old problems of the competition between peoples. No matter how much commerce there was between the Germans and the French, the Germans, as sensible people, would still hate the French.

The topic of trade is a good place to start when wondering about what went wrong with American conservatism. One of the foundation stones of Anglo-Saxon conservatism is the understanding that there must be a balance between tradition and progress. Another is the understanding that 2+2 always equals four, for all values of two. Trade that benefits one part of the nation’s economy, will be balanced out by some detriment to another part of the economy, or even the culture, which always has to be put into the balance.

It is not zero sum game, but close enough to assume so. Therefore, trade policy is about picking winners and losers.This is where libertarians lurch into fantasy. They argue that “free trade” gets the state out of the business of picking winners and losers. In reality, it amplifies the state’s role in that process. The reason is, all trade deals are negotiated by men with agendas, friends, and selfish reasons to want some things and reject others. Men are not angels and neither are their governments, so neither are their trade deals.

Modern American conservatives took a long drag from the libertarian bong, with regards to trade, and came away believing all the fantasies about free trade. Worse yet, they have made global trade a totem. Anyone that questions the wisdom of anything related to global trade is labeled a heretic. The result is we have chubby nihilists at the flagship publication of American conservatism, cheering the destruction of large swaths of American society, all in the name of free trade and other economic fantasies.

Trade, like every other public policy, is about trade-offs. The point of popular government, however structured, is to debate these polices in public. While never perfect, it reduces the chances of trade-offs that benefit the few at the expense of the many. Trading citrus products to Canada for hockey pucks and beaver hats is good for both sides. Giving Ford a free pass to avoid US labor, tax and environmental laws by moving their plants to Mexico is an entirely different discussion.

It is what makes popular government fundamentally conservative. Pubic debate over public policy is not about protecting the poor from the predation of the rich. It is about protecting the powerful from one another and limiting their natural inclination to consume that which supports their position in society. The managerial authoritarianism of modern conservatism insulates the powerful the consequences of their behavior. The lesson of history, the lesson of Burke, is that this always ends in blood.

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“…the Germans, as sensible people, would still hate the French.”

I had a chuckle over that one.

Everyone hates the frogs.

Samuel Adams
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Samuel Adams

Was once asked by a Frenchman if I’d been to France. Told him, no, really hadn’t a reason to since in our family it was simply a place we went periodically to kill Germans, so you’re welcome.

Member

Make that FrenchMEN…
…Frenchwomen are an entirely different thing. And Via La Difference!

Severian
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This was the beauty of the Founders’ system. If a Senator were really doing his job – representing the interests of his state as a whole – free-trade fantasies could never make it into law. E.g. the endless conflict over tariffs in the Age of Jackson (I know, the North wanted protective tariffs, but the point stands). Problem was, pretty soon a prereq for being a Senator was a degree from Yale or Harvard — **divinity** schools — where they got the yen to save the world, and that was that. Much as in England – Lord Curzon wanted to… Read more »

thor47
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thor47

Trebuchet sounds like one of those words you toss off to show how sophisticated you are. Tres chic, tre buchet.

JohnTyler
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JohnTyler

A very interesting point you raise. US Senators used to be elected to the Senate by their respective state legislatures so it was clear the Senator was in Congress to represent his/her state (unlike today where an election for the US Senate has degenerated into a mini-national election where big $$$ interests from out of state enter into the fray to influence the voting blocs in the US Congress). This all changed in about 1913 with the adoption of the 17th Amendment to the Constitution which allowed for direct election, by the citizens of each respective state, to vote for… Read more »

Samuel Adams
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Samuel Adams

The real eye opener for me was shortly after China’s WTO accession and I worked on several projects to open the China market for our firm (financial services). The sum total of that experience was simple. On every level the Chinese rope-a-doped the agreed upon rules. They were clever at exploited loopholes–such as the silence on provincial versus national licensing and capital requirements (we were in the insurance business) which gave them the ability to opt for per province licensing with absurd per license capital contributions and a two year wait on each license. Effectively rendering entry impossible outside of… Read more »

Guest
Guest
Guest

Perfectly analogous experiences in the technology sector. All proposed deals to enter China’s market require a JV with a Chinese entity which gets full disclosure of and license to all IP of the US entity. Horrible deals, all of them.

IIRC Boeing is contemplating a deal to begin aircraft manufacturing in China. This will begin the decline of aircraft manufacturing in the US.

alzaebo
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alzaebo

Well, our betters regulated our maritime industry and 90% of passenger rail into oblivion.
They just keep improving us.

Notsothoreau
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Notsothoreau

Ah but Trump is a buffoon and an idiot. Or so the smart people tell me /sarc.

Samuel Adams
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Samuel Adams

Yes that is what the smart people say…but. One of the directors of my old firm was the senior commercial workout guy at a money center bank that begins with “C” in the late 80s/early 90s. So their commercial syndication guys got into Trump for a ton of money, where the developments went bad. Ended up on his desk. Now this was supposedly “super” senior debt where the covenants should have given “C” a lot of control….but not the case. Trump ran circles around these guys, eviscerated the normal covenants, and basically got their money at a preferred rate, but… Read more »

Member

The high tech company I worked for more than a decade ago actually had some very advantageous business relationships with our Asian partners… but they were worked out by a couple of slick Lebanese guys. What was that TV series? It Takes a Thief! We still had to watch them like hawks to ensure that they didn’t gray market our parts.

JohnTyler
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JohnTyler

How many US built autos does one see in Korea, Japan or Europe? Trade barriers take many forms. Oh, those American apples are not red (or big, yellow, sweet) enough to meet our standards here in, say, Japan. Sorry, can’t allow them in, despite our “free” trade agreement. What’s that, American beef contains chemical X ! (or Y or Z or …) Sorry, can’t let that in to, say, Korea; does not meet our standards, and yes, do not fret, we do have a “free trade” agreement with the USA for beef products. What’s that, we found an insect, ONE… Read more »

thor47
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thor47

Maybe trade deals should negotiated by transgendas, and Chubby Nihilists is a good name for an all woman band.
( Yes, I do like rubenesque women. )

I always find it hilarious that the French are descended from the Franks, a Germanic tribe. So the French are really Germans. Disorderly, inefficient Germans, but Germans just the same.

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[…] SOURCE for more and to see how fucked the world and the USA is with all these trade deals like NAFTA, TIP, blabh blahb blah… […]

alzaebo
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alzaebo

Made this comment about our “trading parners” in the East. War inflation, feeding financial colonization, is where the conservatives went wrong. (That includes domestic wars such as On Some Drugs, Some Poverty, Some Terror, Some Families, Some Illiteracy, and One Race, One Gender, as well.) Get out. Quarantine. Stop feeding the cats. What is the ROI on our multi-trillion $ “investment” in Pakistanistan, etc.? Who pays for the military, socializing the costs? Who makes money, privatizing the profits? Heaven forbid we should spend that money on American workers, skills, infrastructure, energy, and resources- that little thingie called the American economy.… Read more »

Dutch
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Dutch

Perhaps impoverishing certain “red state” parts of the economy is part of the big strategy here. Everything else is fake or manipulated, why not?

King George
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King George

Precisely.

Mass nonwhite immivasion is another example of this same strategy. Just one more blunt instrument with which to club the working and middle classes senseless while the state’s long tentacles slip into their pockets.

King George
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King George

I’m a fan of autarky, myself. No dependence on other states for cheap labor and cheap plastic crap, no military entanglements, no over-leveraged empire, no giving away industrial technologies and military secrets to rival powers, namely China.

If I were king, I’d cut every tie everywhere, make a fresh stable of nukes, build a missile defense system reminiscent of Israel’s Iron Dome, go completely renewable and nuclear, and expel the 100 million foreigners. And everything sold in America would have a little “Made in the USA” label on it.

Perfect, Washingtonian isolation. Splendid.

Al from da Nort
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Al from da Nort

My experience in high-tech in Asia in the ’90’s completely supports that of previous commenters about the realities of free-trade agreements. For example, not only were there no (non-military) American cars in Korea, there were no Japanese cars to be seen either (still sore about being a Japanese colony). There were more Toyotas wrecked in the Sahara Desert than were on the highways of Korea at that time. And we are still defending both for free. One reason I observed for these bad deals is the expat incentive structure: Over there you get to play big shot in the American… Read more »

Jeffrey S.
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I certainly agree that all trade involves trade-offs. But this is true of local trade and investment as well as international trade and investment. The argument is sometimes made that somehow workers can ‘adjust’ to local disruptions better than international ones (i.e. if a smart competitor shows up from Texas and puts me out of business in Illinois, my 100 workers can find jobs quicker than if that competitor was from China.) I see no real world evidence of this claim and indeed, when we look at what caused job losses in manufacturing over the past 30+ years most economists… Read more »

Notsothoreau
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Notsothoreau

I read the Williamson article and it ignores reality. People have attachments to their communities and neighbors. They have houses they have to sell before they drift off. It’s difficult to move to a new community, without any connections there. And for older workers, it’s unlikely you will find a job to migrate to. I know that we are supposed to be a nation of footloose drifters. But if I owned a house outright in a dying community, I’d stay put.

Marina
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Marina

It’s an economic system that privileges soft sociopaths. Sure, move for a job. Lose that free backup childcare from your relatives, learn a whole new area, swallow moving costs, rebuild your social network from scratch, force your kids to adjust to new schools, miss out on weekly dinners with family, etc. There’s huge non economic costs to moving.

Some Guy
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Some Guy

Well, I’m gonna have to disagree with you on pretty much all of that, but especially the first part. If some competitor in Texas opens up shop and puts you out of business in tax-happy Chicago, your workers can move to Dallas and enjoy employment, lower taxes, less crime and all of their constitutional rights. If your company just up and moves it’s plant to China or Mexico, your employees are screwed as the job market in their specialty is now smaller and they can hardly move to Beijing.

Jeffrey S.
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The assumption here is that the company that moves the plant to China or Mexico must do so for a good reason. Presumably they are looking for cheap labor — but remember that usually cheap labor means less productivity and less pay. That’s why the labor is cheap (and why living standards in China and Mexico are lower than they are in the U.S.) So yes, some low-skilled workers in the U.S. are being “screwed” for their particular market — but you are wrong to immediately assume that no jobs exist in new markets for low-skilled workers and you are… Read more »

Cicatrizatic
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Cicatrizatic

The author of that post doesn’t appear to understand how the “financial account” portion of trade balance works. He thinks America’s overall account balances because – in the case of America’s financial account – American corporations reap huge profits on foreign investments, bringing back more income to the US than is extracted by foreigners investing in the US. No, America’s financial account reflects that foreigners invest in dollar-denominated financial assets in a greater amount than Americans invest in foreign financial assets. It’s not the income that is earned from the investment that is logged into the financial account. It is… Read more »

Notsothoreau
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Notsothoreau

Minor rant: retraining for dislocated workers is the biggest scam ever. It exists to funnel taxpayer money to community colleges. The education sector is like a giant engorged tick on the economy. But it’s a way to reward faithful Democratic voters. Back before the tech bust, I worked for an IT department. They weren’t willing to let me move out of the Help Desk, but they had training funds to burn. I was taking classes for a Novell CNE. In my class was an older guy, maybe early 50s, that had been a tractor mechanic in a rural area. They… Read more »

Member

I’ve become so cynical when it comes to the stooges of Conservative, Inc. that I think there’s another reason we’re hearing so much about trade this year. If you consider Trump’s top three issues – trade, immigration and not invading the World – there is only one that Conservative, Inc. can claim a principled stand against without giving the game away. Nobody but their big donors and Democrats want open borders, so they’ve never tried to mount a defense of those. Literally nobody not related to Bill Kristol by birth or marriage can argue that Bush’s foreign policy was a… Read more »

dad29
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Thank you very much for your essay!

Member

Try googling economic causes of the French Revolution. It’s pitiful. Most entries talk only about the debt crisis in the immediate lead in to the King being forced to call the Estates General. The hundred years of burgeoning administrative centralization, wars, debt, distribution of privilege for profit, expropriation of properties for government projects, formation of government sponsored monopolies and the stock speculation bubbles engendered by these, especially the role of John Law, are all conveniently ignored. It’s as if the historians of the era know about all this and choose to overlook it because it interferes with the narrative that… Read more »