There is no such thing as a Free Trade lunch
The great irony of the late 20th century and early 21st century was the push for globalism by libertarian aficionados. Friedman-types fiercely argued that protectionist policies would impede economic growth; free trade, they claimed, would give the West an edge over their Eastern counterparts. The countries that chose protectionist policies would soon be forced to join the free traders or lose out.
Milton Friedman himself famously said that the argument against free trade is “utter nonsense” because “exports are the cost of trade” and “imports the return of trade”. So assured of his argument, he continued to parrot it until his death. He helped spawn a generation of acolytes that mindlessly repeat the same pro-free trade message, using the same arguments to push his message and punish dissenters. Many of the arguments for free trade are familiar to us in different contexts — one argument by pseudo-intellectuals tends to point out that the “consensus” among economists is that free trade will set us free. Few concerns are ever raised about the countries that have tariffs on imports, but demand minimal or no tariffs on their exports. After all, that only means the West is winning the trade war by reaping all of Friedman’s benefits.
Of course, all of this was based on a poor understanding of Ricardo’s theory of international trade. Any student of economics has learned about comparative advantage and David Ricardo. In fact, it is probably the first thing most students learn about economics. Ricardo was operating under the premise that countries should specialize in whatever they are comparably better at producing and export those products in order to gain the surplus benefits produced by making said trade. These benefits can then be used to trade for whatever the country in question needs. In that way, everyone wins from trade, and free trade only eliminates unnecessary costs imposed on society, making everyone better off.
The implications of free trade, however, were poorly understood. For years, trade theorists posited the economic benefits gained from free trade made it a superior strategy. Economists, famous for wanting tractable mathematical solutions to their wild theories, define economic benefits as consumption. Basically, the freer the trade, the more a society can consume.
The masses who stood to lose their livelihood remained unconvinced and pushed back on the theory but were dismissed as Economic Luddites. Why, said the economists, would you hold back societal progress? Free trade makes everyone better off because theory tells us that the gains made from trade can simply be transferred to the losers of trade in the short term and in the long term the losers can be retrained for better and more profitable fields. The gains from trade were, of course, never transferred to the losers of trade. Many were best suited for the industry they were currently in, some were too late in life to start in an entry level job in one of the promised new industries, and, in fact, some of the promised new industries themselves were shortly thereafter moved offshore.
Simply put, what the economists miss is that economic benefit is not merely consumption. Economic health most certainly is not. Free trade may have raised consumption in society but the distribution of that consumption has distinctly favored those at the very top of the food chain, crushed those in the middle, and left Western countries with a series of serious problems that may take generations to fix.
For one, we have exported a substantial part of our manufacturing sector to other countries. Supply chain shortages in the name of public health shutdowns are just one consequence. Just-in-time supply chains were never built for an economic shutdown and cannot simply be turned back on without the inflationary consequences that we are now seeing. If the manufacturing industry still existed in the West, this would be a much lesser problem. The manufacturing industry had previously been converted to deal with similar economic shutdowns in World War 2 and the subsequent rebuilding of Europe.
Secondly, in order to compete in today’s economy, people need to be more and more educated. More and more fields are popping up in the university sector to accommodate those that lack the intellectual capacity to take on difficult subjects. We are left with an excess of degrees dealing with utterly feckless subjects; many of those pursuing these degrees are left with student loans that dwarf any earning potential they will ever make especially with an ever-expanding tax system taking a larger share of their incomes.
Thirdly, wages are doomed to regress to the global mean in order for industries to remain competitive in any given country. If Americans, as an example, want to work in the refrigeration industry, they will eventually need to be so productive to make up for the wage disparity between them and, say, Mexicans, or they need to take lower wages. As things become more automated, it is extremely difficult for any group of workers, let alone a single worker, to be collectively productive enough to overcome the wage disparity. Wages will continue to drop in the absence of protectionism. Even worse, in the world of free trade, industries that cannot be easily exported, such as farming, are still subject to the same global prices.
The old trope among Republicans and Democrats alike is that there are jobs that Americans just do not want to do; for this reason, millions of temporary workers need to be imported to work in the fields. Employing temporary workers helps farmers keep down the cost by paying their laborers in peanuts, and this is necessary because farmers are often times price takers. The exporters that farmers sell their product to offer them a global price, which is kept low by everyone importing temporary foreign workers.
Fourthly, and most damningly, the Regulators continue to impose restrictions on Western industry. Many of these restrictions hold public benefit given a Western value system. For example, most in the West do not want to see child labor, environmental degradation, or unfair labor practices. But regulating these things imposes a cost on industry. It is easier to employ an army of Chinese ten year olds at a small fraction of the cost of employing one adult in a Western country even if a Chinese ten year old is less productive than an adult. The equation is only transformed to the question: How many ten year olds does it take to be additively more productive?
In the West, despite the fact that we claim our value system is against many of the practices that are strictly regulated or outlawed, our globalist tendencies do not stop us from buying products that violate these regulations, so long as they were violated in a different country. It is the great irony of this late part of the last century and the early part of this one that globalist companies that claim to be socially responsible are some of the worst violators of their patrons’ value system. I am, however, absolutely certain that the executives of those companies and their patrons do not lose an ounce of sleep at night. We love to consume products, so long as we don’t have to see how they are made.