The Fallacy of Free Trade

Way back in the 80’s, I used to tell people we would rue the day we let Congress give up its power to manage trade. Tariffs and restrictions have well know costs and they don’t always serve the interest of the people. I read Smith’s analysis of English corn laws and I fully agree that tariffs rarely accomplish their stated goal. The world is richer when countries allow the free flow of goods between them – generally speaking. There are exceptions and they are big exceptions.

That’s the trade-off. Congress gets to play games with trade in exchange for addressing those exceptions. Free trade with Canada, for example, is a no-brainer. The free flow of goods and people between our two countries is good for both of us. Free trade with Mexico, on the other hand, is fraught with problems. Mexico is a failed state run by narcotics traffickers. Here we are all these years later and maybe it is starting to dawn on our rulers that trade is not a set it and forget it thing.

President Barack Obama has called on Congress to grant him fast-track trade authority for his Trans-Pacific Partnership free-trade agreement. The administration insists the authority, which would give Congress only an up-or-down vote on the agreement, is needed to get the best possible terms from its trade partners along the Pacific Rim.

During his 2008 presidential campaign, Obama promised to renegotiate and improve the North American Free Trade Agreement (NAFTA). But it now looks like what he really meant is to expand on that flawed trade model and extend it to other countries.

Twenty-one years after NAFTA and four years after Obama’s 2011 U.S.-South Korea Free Trade Agreement, there is abundant data documenting how this trade model has been disastrous for most U.S. businesses, farmers and workers.

Since the pacts were implemented, U.S. trade deficits, which drag down economic growth, have soared more than 430 percent with our free-trade partners. In the same period, they’ve declined 11 percent with countries that are not free-trade partners. Since fast-track trade authority was used to pass NAFTA and the U.S. entrance into the World Trade Organization, the overall annual U.S. trade deficit in goods has more than quadrupled, from $218 billion to $912 billion.

The United States now has an annual $177-billion trade deficit in goods with its 20 free-trade partners. Over the past decade, however, U.S. export growth to countries that are not free-trade partners exceeded the growth of free-trade partners by 24 percent.

The trouble has always been cultural. Canada can be relied upon to follow the rules. The Canadian government will police itself and respond to requests from our government when something is amiss. China, on the other hand, is a bandit culture and the Chinese government sees America as an adversary. Naturally, they cheat on every deal. Mexico is a failed state and lacks the ability to police themselves, even if they wanted. Free trade with these countries sets us up to be patsies, which has been the case for decades now.

The thing with tariffs is we knew the costs up front. The cost of protecting a domestic industry could be calculated. As a matter of public policy, the people decide if the price is warranted. It’s not always logical, but the costs are at least predictable. Unfettered trade brought unknown unknowns that are just starting to be understood. Those unknown unknowns have costs. The new global elite, for example, is unconstrained by national governments. The result is a class of global pirates seemingly beyond the reach of the state.

Public policy is always about trade-offs. Life may not be a zero sum game, but it is close enough to think of it that way. That means a policy that benefits one group will do so at the expense of another. Limiting trade with Mexico may drive up the cost of lawn care, but it also means you can go into an emergency room that does not look like a bus station in Tijuana. Regulated trade with China may jack up the cost of your iPad, but it also means keeping poisoned pet food from China off US shelves.

These are trade-offs to be debated by the people’s representatives. Turning them over to technocrats at the WTO is to make a mockery of self-government and open us up to predation.

10 thoughts on “The Fallacy of Free Trade

  1. @Charming Richard

    Nothing American is even comparable to the Miata, the 3rd gen RX7, or the VFR800. Erik Buell is a great man, but you said “open road”, not “track”.

    Has there ever been an American car with acceptable handling? I drove an early ’00s Mustang and it was basically a small minivan. Nothing an enthusiast would waste money on.

    I wish it weren’t true, but there’s no use lying to ourselves. If you think Japanese cars and bikes lack “character”, it’s Europe, Buell, or nothing.

    • There’s a difference between handling and road feel. The higher end versions of Mustangs, Camaros, Cadilacs and SRT’s put up track numbers comparable to their relevant competition. America is not a compact country with lots of narrow, winding roads. As a result, cars built for those streets are not going to be as popular as those built for long straightaways. Then there is the whole road feel side of things. A proper British sports car feels like a go-cart. It’s low, light, springy and great for darting around country roads with the top down. A proper Italian sports car is great to look at while you wait for the tow truck. The proper American sports car has the low end acceleration and torque that causes your head to slam into the headrest.

      My own tastes alternate between the British and American tastes. Yeah, that aesthetic lacks the art of the Italians and the engineering prowess of the Germans, but that’s why the English speaking people have dominated the world for 300 years.

  2. People that cite “Consumer Reports” opinions on automobiles are always quite satisfied in their own ignorance of the subject.

    If you’re happy driving a refrigerator or washing machine, a Jap-car will do nicely.

    If, however, you enjoy the excitement and freedom of the open road, American V8 muscle is the only game in town.

  3. The building of automobiles to a high standard is about two things, insane dedication to both engineering and quality control, and non-union labor.

    • All Hondas sole in the US are built in the US now. Almost all Toyotas. Mercedes and BMW have brought a lot of production to the US.

  4. “foreign cars are more reliable than American brands.”


    Unless that’s a 1987 Chrysler LeBaron parked in your driveway……the gap has narrowed significantly.

  5. idk about the last part. foreign cars are more reliable than American brands. also imports must meet the same standards as domestic. food poisoning outbreaks happen all the time with American brands, like the infamous Jack in the box outbreak in 1993.

Comments are closed.