Free Trade vs Protectionism: Weapon of Mass Distraction

By Richard D. Wolff, Professor of Economics Emeritus, University of Massachusetts, Amherst, and currently a Visiting Professor in the Graduate Program in International Affairs of the New School University in New York. Wolff has also taught economics at Yale University, City University of New York, University of Utah, University of Paris I (Sorbonne), and The Brecht Forum in New York City

For centuries now, countries where capitalism prevails – where businesses are organized around the employer-employee relationship – have shifted their governments’ international trade policies back and forth between free trade and protectionism. Trump’s tariff threats and plans are nothing new. They represent just the latest shift in an old, old oscillation.

Free trade just means that government interferes relatively little in the goods and services trade crossing its national border. Protectionism means that government intervenes relatively more to shape international trade. Major means of protectionism include quotas (limiting quantities of items crossing borders), tariffs (taxes levied on goods and services when they cross a border), subsidies, and so on. The word “protectionism” reflects the chief historical reason why governments intervened: namely, to protect domestic enterprises from foreign-based competitors. For example, by quotas on how much foreigners could bring in or by a tariff (tax) on foreign imports, domestic enterprises’ profits were protected.

Struggles between advocates of free trade vs protectionism always were first and foremost struggles between industries who stand to gain more from one than the other. The US government, for example, has long imposed quotas on sugar imports. Partly as a result, today’s US sugar price is over 40% higher than the world price. US sugar producers can charge us more because the quota limits how much of US demand cheaper external sources are allowed to supply. The quota protects sugar industry profits. For many years the US imposed a similar quota on imports of Japanese automobiles to protect the US industry’s profits. US tariffs today apply to thousands of imported goods and services yielding many billions of dollars in revenue to Washington.

On the other side, quotas and tariffs are opposed by industries seeking to lower their outlays for imported inputs. For example, sweetened food producers could profit more with cheaper sugar. They thus oppose “protectionism” and favor “free trade” in sugar. If they faced competition from foreign sweetened food, they might favor protectionism for the food trade other than sugar. Or, if sugar prices rose too high, they might switch to use corn-based sweeteners, lose interest in the sugar quota issue, and focus solidly on food protectionism. Similarly, taxicab companies would prefer free-trade in automobiles to lower their costs.

Thus, throughout capitalism’s history domestic industries’ ever-changing situations aligned them now on one side and then on the other in endless struggles between free trade and protectionism. It became more complicated when the same industry (for example, automobiles) produces and trades both inside the US and outside. In any case, each industry generally chooses between the two sides according to which is better for its profits. The stronger and more politically effective side wins the struggle to determine government trade policy.

Winning often depends on the strength of each side’s alliances with and support from the public. To that end, it is not politic for either side to identify its goal as more profits. Instead, each side insists that what it prefers is what is best for jobs, growth, environment or still other broad social goals. Both sides usually find and/or buy academics whose studies conveniently affirm broad social benefits of the buyer’s preferred trade policy. Such academics often believe that their research actually can determine which policy is best for everyone.

But, no one can do that. No one ever has, notwithstanding claims to the contrary. The reasons for this are several. First, the consequences of either policy occur directly and indirectly over many years into the future. Second, those consequences are infinite in number, diversity, and complexity. Third, they include consequences of which we become conscious and those that remain unconscious. Thus the consequences of either policy are neither fully knowable nor measurable. Moreover, because the consequences of either policy interact with all else occurring in society, disentangling either policy’s consequences from all other influences on those consequences is not doable (and never was). We can never know what all the consequences of either policy will be.

On the one hand, the battling industries don’t care about secondary, longer term consequences. For them, the likely, hoped-for, short-term impact on profits drives their behavior. Each side promotes assertions about the broad social consequences of policies with the intent thereby to acquire pubic support and thereby strengthen its side. Academics whose work makes or endorses such assertions (often with remarkable epistemological naivete) are useful for the contending industries that use them.

On the other hand, workers and their organizations sometimes ally with protectionists persuaded that protection will surely deliver more jobs, higher wages etc. Consumer advocates will often support free trade because its sure consequence, they have been led to believe, is lower consumer prices. There are countless examples where, in fact, opposite outcomes have resulted. When such organizations take positions in the free trade vs protectionism struggle, they are supporting – based on unprovable assertions – one or another industrial group’s self-serving agenda. Trump manipulated that history of position-taking to help win the election.

For workers and consumers in our capitalist system, the problem is the system, not this or that trade policy. The promises to workers about their certain gains from NAFTA enabled Trump to benefit when those promises were broken. Much the same may well befall Trump in turn since he makes comparable promises for protection against NAFTA. Capitalist employers will, as always, respond to any and every governing trade policy by advancing their interests via automation, relocation of facilities, lobbying for special exemptions, product choice and much else. They will thereby continue to generate the cyclical instability, growing inequalities, ecological devastation, etc. that beset modern society: workers’ and consumers’ real problems.

The struggle between free trade and protectionism is over which kind of capitalism will prevail. It is a struggle chiefly among capitalists (as was, for example, the history of the TPP). Those who seek to challenge and go beyond capitalism (either kind) have radically different, system-changing goals. They should participate in capitalists’ struggles such as free trade vs protectionism only if and when doing so advances their own system-change priorities.

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  1. Abraham Lincoln

    US per capita industrial production is now at the level of a low middle income country (steel, vehicles, iron per person) are now lower than Turkey, Iran, Colombia.

    If the US has no industry it will be a third world country. This is an incontrovertible reality. The US became wealthy behind high protectionist tariffs (thanks to Lincoln). The ghettoes and rural poverty have expanded dramatically since the shift to free trade.

    Protectionism v. Free Trade is THE MAIN DEBATE in the US – it will determine whether we are as rich as Singapore or as poor as Chad.

    1. DSean

      US will remain the richest country in the world (or the country with the most billionaires) as long as it has the largest military to strictly enforce the global economic system in its interest and violently suppress any system that might arise to challenge it.

      1. Brian M

        But all of that wealth will be concentrated in the hands of the Cronies. The spreadsheet diddlers, military industrial complex parasites, and other imperial hangers on. Much of the country will simply rot.

      2. different clue

        If the country implodes, eventually the country’s military falls into the suckhole.

        The imploding USSR’s huge military did not save the imploding USSR from imploding. And the imploding USSR’s “A-Team” communisters figured out how to become rich off the wreckage of implosion, becoming the oligarchs we know today.

        In the same way, America’s big military will not save an imploding America from imploding . . . especially because it is the American OverClass who are imploding America from within and above, very deliberately on purpose with malice aforethought in order to make even more money off the wreckage of engineered implosion.

        And of course Free Trade is one of the weapons of deliberately engineered implosion.

        1. PhilM

          That’s right: money is the sinews of war. No money, no military. One year of a tax base cut in half and the US military would disappear completely. The margins to get parts for the equipment would become so high that there would be no money to pay soldiers, and so we would have either no soldiers, or no equipment for them to use.

          It’s going to happen exactly that way, because the people who profit from these situations will make money right up to the moment of collapse.

  2. Ignacio

    For workers and consumers in our capitalist system, the problem is the system

    Or the lack thereof. Lack of general rules that creates business oportunities by exploiting differences between systems. The only general rule is the protection of capital and that was going to be sealed with the ISDS part of TPP, TTIP, TISA at the expense of any other consideration.

  3. oho

    no such thing as free trade unless you’re within a unified level-playing-field regulatory scheme—like the 50 American states, not even the EU counts.

    Everything else is “managed trade”

    People using the term “Free trade” should be a case study in Orwell 101.

    1. Ping

      Don’t forget that trashing the environment, as China has done, by dumping waste in water and air costs less to producers than environmental protection, but the long term costs to everyone else for health & quality of life damages are incalculable. Removing that aspect from calculations is an abhorrent crime and disadvantages a trading nation with high environmental standards.

      I am referring to “true cost economics”

      1. different clue

        People should think of ways to force all the costs of doing or making something out of hiding and into open view where they can be priced and their entire priced-out cost forcibly loaded onto the good or service being sold. We could call this goal or concept to be ” truth in pricing”.

        For straight-up pollutants like mercury from burning coal it would be easy enough to do or to force.
        Barry Commoner once said that such pollutants should be “zero tolerated”. Big Coalburning Utility should be legislatively forced to reduce its mercury emissions to zero. Big Coalburning Utility should then be free to charge whatever price it likes for its burned-coal electricity so as to pass along to the consumer ALL the costs of keeping mercury emissions to zero. Because it is the consumers’ fault for consuming electricity to begin with that even makes mercury emissions from burning coal to be even an issue at all.

        And if that sort of zero jpollution tolerance is adopted in the US, then imports from countries which do not practice the same zero pollution tolerance should be totally banned.

        That’s just an easy example case, to be sure. The costs of CO2 itself from burning coal may be harder to price, but the attempt should be made, the priced-costs imposed onto the price of burning the coal, and economic contact with countries which don’t do the exact same thing in the exact same way should be banned. And any underhanded attempt to trade with such countries should be treated as Death Penalty Treason.

        1. Erik G

          Yes, actual product costs to society should be taxed to buyers and/or producers, and used to correct the problems caused. Similarly, the costs of foreign aid to poor nations should be taxed to buyers of those comparable products. These taxes would correct the influence of market incentives contrary to the public interest.

  4. nonsense factory

    Isn’t there a fundamental distinction between the flow of goods across borders, and the flow of capital, money, across borders?

    Free trade is considered beneficial to both trading parties when viewed through the lens of David Ricardo’s “theory of competitive advantage” but only if several conditions are met, and one of those is that the capital acquired from trade stays in the country where the trade originated.

    This is fundamentally why setting up a sweatshop factory in some Third World country doesn’t benefit that country. The corporation doesn’t invest proceeds from “sales” from this factory in the country, but those proceeds instead go right back to the corporation’s offshore tax haven, and from there back onto the corporate balance sheets (or some variant thereof).

    This is an entirely different feature from the traditional “protectionism vs. free trade” arguments of the past. In those cases, a country might engage in protectionism for short periods of time to protect growing industries from overseas competition, but such policies should be phased out after a decade or so, which should be enough time for a business to succeed or fail. In other cases, key agricultural sectors should be protected from dumping by foreign conglomerates (as Japan does for its farmers); if Mexico had instituted similar protections for its small agricultural producers, small farmers would have survived NAFTA and we wouldn’t have seen the massive undocumented migration to the United States in search of jobs.

    In any case, there seem to be several fundamental features of the modern “free trade” deals that lie outside traditional free trade-vs-protectionism arguments, related to capital flows and the nature of modern multinational corporations.

    1. Clearpoint

      Free trade is a fantasy and always was. Today is no different than the glory days of free trade you alluded to. Capital, in the Adam Smith classical economic sense, has always been extracted from the weaker party in the transaction by the stronger party when the market is left free, and has always gone where the stronger party has chosen to put it. The relationship is that of predator to prey. During periods of change and innovation, the historically weaker party has occasionally gained some competitive advantage, but that gain has always been short-lived. Every game has rules to follow. Competition is fragile, and needs well thought out human intervention, i.e. rules, to survive and remain beneficial to society. Free trade left to its own devices will strangle competition. Predator will eat prey. Protectionism is a set of rules that is sometimes needed to keep the game of economics competitive, i.e. to keep the predator from eating prey.

  5. Schofield

    Few understand that outcomes in the global trading “system” is substantially determined by characteristics of money and monetary system working. For example, money has a built-in “antagonism” namely that it has no “firm” value. This fact can be exploited through currency rigging. Additionally the use of Functional Finance enables larger subsidies to enterprises than countries which believe in the Neo-Liberal fairy tale there is no such thing as public creation of money.

    1. djrichard

      Few understand that outcomes in the global trading “system” is substantially determined by characteristics of money and monetary system working.

      Reminds me of that line in the matrix, “is that air that you’re breathing?”

      Similarly, “is that lower wages that makes other countries more attractive for outsourcing?”

      So, West Virginia and China both peg their currencies to the US dollar. In fact, WV uses the US dollar. China doesn’t so the PBoC has to print yuan to buy the US dollar to keep the peg. Which results in QE to the exporters (and housing bubbles).

      If I was WV, I would secede from the Union and establish my own currency. And then debauch it through QE to make WV a haven for outsourcing supply chains from industry. And then at the same time come out with a marketing campaign that it’s the magic of WV labor being so cheap that makes WV such an attractive haven. And then get a housing bubble to boot. It’s a win/win/win all the way around. Except for those poor saps left in the US. But hey, at least they can immigrate to WV.

      I’m sure if our elites think hard enough they’ll come up with a way to promote immigration to China and Mexico from the fly-over states.

  6. Altandmain

    A big question – how can the US keep on running deficits for years and not go bankrupt? If it goes bankrupt, how can the US afford all these foreign produced goods?

    This quote is telling:

    On the one hand, the battling industries don’t care about secondary, longer term consequences. For them, the likely, hoped-for, short-term impact on profits drives their behavior. Each side promotes assertions about the broad social consequences of policies with the intent thereby to acquire pubic support and thereby strengthen its side. Academics whose work makes or endorses such assertions (often with remarkable epistemological naivete) are useful for the contending industries that use them.

    The US became strong thanks in heavy part due to tariffs.

    In the long run, sending industry overseas only benefits a small number of rich people, while the nation suffers. The US loses its power and influence.

    Plus with manufacturing comes R&D. Oh, and it’s not automation too. If automation were the issue:

    1. We’d see very high productivity growth (US productivity growth is weak)
    2. High capital investments (American companies don’t do that – they use the money for share buybacks)
    3. Strong correlation between productivity and unemployment (data says the opposite)

    Ultimately it is a self serving lie.

    1. a different chris

      The US cannot go bankrupt as it can print all the money it wants. There theoretically could be a situation where the dollar devalues badly and, until import substitution takes hold it could be a little rough (it’s a big country blessed with lots of arable land and lots of institutes of higher learning so can produce pretty much anything).

      This situation will not happen because the world elites use US currency so what we have now – a “strong dollar” – is exactly the situation they want, and when the Japanese decided they want to be first world then the Chinese were next in line and if they get uppity there are always the Vietnamese. You would think they would run out of people to exploit but they just keep circling around the globe, even white people (see: Irish) are not immune.

      1. different clue

        To say America cannot go bankrupt is to confuse money with wealth. The US is already going socially bankrupt and ecologically bankrupt in places as we watch . . . or don’t watch.

        Once the “other half” of all the topsoil in Iowa is gone, for example . . . and the Oglalla Aquifer runs dry dry dry . . . the US can print all the dollars it wants to and they wont’ be worth a Mugabe Zimbuck.

    2. Massinissa

      As to the first part: Countries. Do. Not. Operate. Like. Households. They can and have run deficits indefinitely. More countries do so than not.

      I agree with pretty much everything else you say though.

      1. PhilM

        Yeah, that’s right. They do that right up until they don’t anymore, which is when, all of a sudden, they operate exactly like households, including the fact that the people and the government get a sudden and ugly divorce.

        1. Massinissa

          And examples of this would be? Preferably in the last half century.

          And even then, considering how multiple countries have operated on deficit spending for over a hundred years in many cases, I’m still not sure I would be convinced those examples would be anything other than anomalies.

  7. JJ

    From 1816 until 1967 the United States was the most tariff protected nation on earth. During that time we created all the jobs we have lost to outsourcing under free trade. Today we have more free trade than we have ever had. Except for Wall Street where are our citizens more prosperous than they were under tariff protection? Blue collar wages (inflation adjusted) peaked in 1972. What good are cheap imports if getting them costs your job?

  8. Jim Haygood

    Capitalist employers will respond to every governing trade policy by advancing their interests … They will thereby continue to generate the cyclical instability.

    Neat rhetorical trick: blaming those who merely respond to changes in rules for generating cyclical instability, rather than the policy makers.

    Probably Wolff would like us to infer that his unspecified Third Way will eliminate cyclical instability. This has been a utopian promise peddled by almost every alternative economic proposal.

    But cyclicality is inherent in natural processes. Try to suppress it, and eventually it will burst the dam that held it back.

    1. AlexHanin

      It’s also a neat rhetorical trick to establish a clear distinction between businesses and policy makers.

      Cyclicality may be natural, but that doesn’t mean it’s good or inevitable.

      1. nonsense factory

        Strictly regulated Canadian banks do not experience the “natural” boom-bust cycle that American finance is so well known for.
        “Why didn’t Canada have a banking crisis in 2008 (or in 1930, or 1907, or …)?”

        “The relative stability of the Canadian banks in the recent crisis compared to the US in our view reflected the original institutional foundations laid in place in the early nineteenth century in the two countries. The Canadian concentrated banking system that had evolved by the end of the twentieth century had absorbed the key sources of systemic risk—the mortgage market and investment banking—and was tightly regulated by one overarching regulator. In contrast, the relatively weak, fragmented, and crisis-prone US banking system that had evolved since the early nineteenth century led to the rise of securities markets, investment banks, and money market mutual funds (the shadow banking system) combined with multiple competing regulatory authorities. “

        Rebuilding Glass-Steagall, eliminating tax-free capital flows across national borders, tight regulation of foreign exchange markets (forex), etc. would stabilize the financial system while eliminating many profit-making opportunities for banksters. Not that the Wall-Street-owned Congress would ever do this.

  9. susan the other

    ‘Cheap sugar’ should be a catch phrase. Like ‘deep doo-doo’. What cheap sugar has now come to mean is ‘sweat-shop labor’ or 3rd world exploitation. But ‘cheap’ is a purely relative term. In relation to what? If the system is working for everyone nothing, no commonly used or necessary thing, is expensive because everyone has the income to cover their needs. Wolff is right. It is the system. And trade is a big, worn-out distraction. Trade only benefits traders who are positioned to skim something. Nobody needs it anymore. We can all supply our own needs and create an equitable system that supports us.

  10. Left in Wisconsin

    For workers and consumers in our capitalist system, the problem is the system, not this or that trade policy.

    This may be true in the long run but in the short run protection can be essential. When Reagan negotiated the Voluntary Restraint Agreement with the Japanese in the 1980s, it was because the Japanese had a several thousand dollar per car cost advantage (not to mention higher quality) and could have added capacity at will to undercut U.S. producers even though the globe was already awash in excess capacity. The VRA saved lots of U.S. jobs even though it undoubtedly raised prices for consumers.

    Over the last decade, the exact same situation has occurred in steel, only the source of new, low-cost capacity is China and there is no VRA. So the Chinese continue(d until recently) to add new low-cost capacity to an industry already awash in excess capacity because, as low-cost producer, none of the excess capacity was theirs. (Yes, I know they are now, belatedly, closing some of their oldest, most outdated and polluting, steel plants but even those plants are lower-cost than steel plants in North America or western Europe.) And the result has been devastating for steel workers.

    It would be one thing if the U.S. was seeing growth in good jobs that could replace the old good jobs, and even more so if there were ways for workers to transition into them, but that is hardly the case.

    Wolffe is technically right that it is all about profits. But sometimes “negative profits” are a real problem for firms and the people who work in them.

    1. different clue

      The system-lords make the policy. And they make the policy in defense of their system-lord’s system to the benefit of them . . . the system lords.

  11. Gman

    Free trade, like free markets are mostly nothing of the kind and their true long term cost is largely borne by the workers and usually the unskilled and semi-skilled labour force of a nation or sector that expediently chooses to exploit it. It all so terribly Darwinian daah-ling, don’t you know?

    The trouble is that the simplistic ‘free trade = good, protectionism = bad’ fallacy still stubbornly persists and still has an enduring credibility and twisted logic that is difficult to dispel, even in the minds of those whose labour it is ultimately employed to insidiously devalue or destroy.

    ‘Free trade’ is another whopper straight out of the neoliberal bumper book of lies along with other doozies like ‘trickle down economics’ , the increasingly darkly ironic ‘American Dream’ and ‘work makes you free’ – ok, ok so maybe not that one, but you get my drift – propagated by those who ideally need to maintain a low cost, compliant, subservient, easily expendable workforce credulous long enough to believe that if they toe the line and work hard good things may come their way.

    The one problem they still haven’t managed to crack, but possibly will given time, is that these ‘excess units of potential labour’ still unfortunately have a vote, and in theory are still equal at the ballot box, for the time being at least….

  12. Jeremy Grimm

    This is a strange post. I suppose it has the merit of adhering to canonical Marxists texts — as joe defiant points out above. I believe Britain’s use of trade policy was different than the current US uses of trade. I imagine a 19th Century economist might find it difficult to imagine a country deliberately promoting trade policies intended to dismantle it’s productive capacity and damage the national interests through promoting International Corporate interests.

    This statement in the closing paragraph:
    “The struggle between free trade and protectionism is over which kind of capitalism will prevail. It is a struggle chiefly among capitalists (as was, for example, the history of the TPP).”
    seems to say the TPP was about trade which I believe is quite an inaccurate portrayal of the TPP content and intent. I believe the TPP was/is chiefly about placing Corporate Power over National Sovereignty.

    The statement:
    “Thus the consequences of either policy are neither fully knowable nor measurable.”
    seems to beg for the Neoliberal response that of course the consequences are unknowable by mere human beings — only the Market can determine the best solution(s). Wolfe’s statement also ignores the very successful application of tariffs and protections for “Infant Industries” in building the US economy in its early years and in building the Asian “Tigers” more recently. Protected trade built industrial capacity and grew our economy — hardly unknowable or unmeasurable effects. Of course this didn’t do much for labor until the 1930s in the US and I suppose it might be uncertain which specific industries and Corporations gained or lost the most on account of the trade policies.

    I also believe Wolfe is very wrong about being unable to predict the impacts of the kind of trade policies promoted by NAFTA and embellished in policies like the TPP. These policies enhance the power of International Corporations over Nation States — drive labor into a competition to the bottom — hollow out the productive capacities of nations in a round-robin search for the lowest cost labor and least restrictive environmental and safety laws setting productive capital leaping willy-nilly across national borders. Wolfe is correct that predicting the long-term consequences of such policies is neither fully knowable nor measurable — but I think he might agree that it fits the Biblical notion of reaping the whirlwind.

    1. Massinissa

      You know I was about to disagree with you but now I think youre right.

      Wolffe is talking about the old capitalism, where most corporations were residing within the country where they are competing between free trade/protectionism. As he said, it was an oscillation of interests inside each individual country.

      In the modern era, it is international corporations as opposed to national ones that are lobbying for these new ‘free trade agreements’. They benefit heavily from less and less national restrictions, and benefit from certain international restrictions such as ISDS. If these corporations have their way there WILL be no more ‘oscillations’.

      I respect Dr Wolffe, but as you say, hes referring to an older version of capitalism that is becoming obsolete and replaced by a newer, more global one.

      Theres a lot to learn from Marxist analysis, but large portions of it are becoming increasingly calcified, I’m afraid. Capitalism undergoes changes every half century or so (its different than it was in 1950 or 1900 or 1850 or 1800..), and the few Marxist economists there are left do not update the rules of their analysis much.

      1. Jeremy Grimm

        I too respect Richard Wolfe and much of what he says and I respect the Marxist analysis. But of late I’ve been listening and re-listening to some of Mirowski’s analyses which strongly suggest the need for new ideologies from the left to counterattack the victories achieved by what he portrays as a very sophisticated three-tiered Neoliberal strategy for controlling the World Economies and World Polity.

        1. Massinissa

          I hadn’t heard of Philip Mirowski until just now. Thank you for the recommendation.

  13. Scott

    I thought that the classical economic use of tariffs was to protect immature industries that needed help becoming strong & mature & let mature industries fight it out with whatever international competition existed.
    I usually like what Wolff has to say. Usually it is more pithy. I would have liked more of that here in this article, but found it short on details, or maybe I wanted something more he, nor can others give us.

  14. Tony Wikrent

    Up until the US Civil War, the terms of debate were very, very different than what Prof. Wolff describes here. First of all, there were very few capitalist interests already existing demanding protection. The arguments for protection were more couched in terms of preventing the princes and powers of Europe from exerting economic influence over the young republic. British oligarchs openly stated and wrote that they could tolerate the colonies achieving political independence, so long as North America remained in economic bondage to Britain. This stratagem of economic warfare was behind Lord Sheffield’s 1783 Observations on the Commerce of the American States, and was repudiated by Thomas Paine in A Supernumerary Crisis II.

    In 1834, there was published in Boston a little book entitled Tracts on Sundry Topics of Political Economy, written by Oliver Putnam, a merchant of Newburyport, Massachusetts who had examined the economic ideas of Adam Smith and other Europeans. Here’s a small excerpt: “We have not been sufficiently awake to the mischievous effects of introducing many English writings into our seminaries of education, and of giving credence to their authors on subjects of political economy and politics. —It is a truism to say that our institutions are radically different from the English. Ours are throughout republican, theirs are substantially monarchical. Theirs are the oft-changed remnants of feudal barbarism; ours are a great political invention, which undergoes its first trial in this country…”

    Finally, here is the great, though now forgotten, American economist of the mid-1800s. Henry C. Carey, writing in The Harmony of Interests, 1851: “”Two systems are before the world; the one looks to increasing the proportion of persons and of capital engaged in trade and transportation, and therefore to diminishing the proportion engaged in producing commodities with which to trade, with necessarily diminished return to the labour of all; while the other looks to increasing the proportion engaged in the work of production, and diminishing that engaged in trade and transportation, with increased return to all, giving to the labourer good wages, and to the owner of capital good profits. One looks to increasing the quantity of raw materials to be exported, and diminishing the inducements to the import of men, thus impoverishing both farmer and planter by throwing on them the burden of freight; while the other looks to increasing the import of men, and diminishing the export of raw materials, thereby enriching both planter and farmer by relieving them from the payment of freight. One looks to compelling the farmers and planters of the Union to continue their contributions for the support of the fleets and armies, the paupers, the nobles and the sovereigns of Europe; the other to enabling ourselves to apply the same means to the moral and intellectual improvement of the sovereigns of America. One looks to the continuance of that bastard freedom of trade which denies the principle of protection, yet doles it out as revenue duties; the other to extending the area of legitimate free trade by the establishment of perfect protection, followed by the annexation of individuals and communities, and ultimately by the abolition of custom-houses. One looks to exporting men to occupy desert tracts, the sovereignty of which is obtained by aid of diplomacy or war; the other to increasing the value of an immense extent of vacant land by importing men by millions for their occupation. One looks to increasing the necessity for commerce; the other to increasing the power to maintain it. One looks to underworking the Hindoo, and sinking the rest of the world to his level; the other to raising the standard of man throughout the world to our level. One looks to pauperism, ignorance, depopulation, and barbarism; the other in increasing wealth, comfort, intelligence, combination of action, and civilization. One looks towards universal war; the other towards universal peace. One is the English system; the other we may be proud to call the American system, for it is the only one ever devised the tendency of which was that of elevating while equalizing the condition of man throughout the world.”

    1. Jeremy Grimm

      Out of curiosity — what does pre-Civil War US trade history have to do with Wolfe’s post? He does mention “Thus, throughout capitalism’s history domestic industries’ ever-changing situations aligned them now on one side and then on the other in endless struggles between free trade and protectionism.”

      Could you explain your comment further? I don’t understand either quote or their significance to the discussion. I don’t understand the significance of the terms of debate being different up to the time of the US Civil War.

  15. Oregoncharles

    The disturbing thing about this article is that it refuses to address any of the logic fielded against corporate globalization, like the “race to the bottom.” Instead, he just brushes it all aside as irrelevant because the socialist utopia hasn’t arrived.

    On the contrary, it’s relevant precisely BECAUSE the s. u. hasn’t arrived, and doesn’t seem at all likely.

  16. LifeIsLikeABeanstalk

    Haygood: ‘cyclicality is inherent’.

    Agree. Light cycles. Weather cycles. The earth circles. Wave crest and trough. Markets peak and bottom. Economies expand and contract. How different would life be if leaders and those who elected them understood that the best plan ever devised and put in place today might be well along the path to obsolescence if not the downright cannibalism of its creators, by tomorrow. All systems require adjustment and revision. Tweaking or total abandonment. Maybe that speaks to their value as opposed to being an argument for their failure.

    Or as somebody once put it ‘He not busy being born, is surely busy dying.’

  17. Sound of the Suburbs

    History teaches about the past but fundamental things can change.

    Manufacturers used to be tied to the nations they did their manufacturing in and free trade/protectionist sentiments followed whatever would work in their favour.

    The UK was the home of the industrial revolution and the workshop of the world. The US and the rest of Western Europe adopted protectionist policies to catch up.

    Very recently a strong dollar would tend to make most US manufacturers favour protectionism as their exports would be expensive.

    The repeal of the Corn Laws ushered in the era of Laissez-Faire

    UK manufactures wanted cheaper corn, for cheaper bread, for a lower cost of living, for lower, internationally competitive wages.

    Today manufactures can abandon their national work forces by off-shoring.

    They are unconcerned by the rising cost of living as they can just use cheaper labour abroad, they favour free trade permanently as they can offshore the work to cheaper labour elsewhere.

    As no one is there to fight for the national labour force, the cost of living rises with housing, healthcare and education pricing them out of global markets.

    The populists start to rise, the forgotten national labour in an era of free trade globalisation. They have been priced out of global labour markets through no fault of their own and a Chinese wage would leave them homeless, they can’t compete.

    1) You are free to spend your money as you choose.
    2) No money, no freedom.

    Group one like the cheap stuff they can buy.

    Group two would like to have a job, to earn some money, to buy some stuff.

  18. ewmayer

    The author paints a picture of an allegedly morally-neutral “periodic oscillation” between so-called free trade and protectionism, but in fact societies have both the right and – in terms of securing their long-term viability – the duty to apply a “which policy best serves the broadest social good” standard to such policy decisions. In that light, the various “free trade” agreements of the past 50 years have had overwhelmingly negative societal consequences for the countries whose government policymakers bought into mainstream economists’ “free trade is everywhere and always a good” more-than-just-a-zero-sum-game snake oil.

    The fact that the author makes 0 mention of the toxic effects of the environmental and labor-law arbitrage and the wildly disparate “who benefits” data which have piled up in the wake of said half-century of “free trade” bias is telling. Environmental and social devastation, and debt slavery for the economically disenfranchised bottom 90% – it’s nothing to worry about, people, it’s all just part of an inevitable, eternal “natural cycle”. I do so love it when academic economists make these kinds of speciaus “laws of nature” arguments.

  19. Karen

    “Thus the consequences of either policy are neither fully knowable nor measurable. Moreover, because the consequences of either policy interact with all else occurring in society, disentangling either policy’s consequences from all other influences on those consequences is not doable (and never was). We can never know what all the consequences of either policy will be.”

    Ah, but the effects of trade policy can sometimes be measured quite clearly after the policies go into effect. Not always, certainly, but sometimes.

    For example, the effect of the U.S. decision to grant Permanent Normal Trade Relations to China in 2000 has been examined in detail by two academics in their 2012 NBER working paper titled, “The Surprisingly Swift Decline of U.S. Manufacturing Employment,” which can be found on the web here:

    For those who lack the time to read the text, Figures 1 through 3 on pages 39-40 are very interesting.

  20. d

    in reality all business ever wants is to make it easier to make a profit, they dont really care if that ends up killing their company (by say eliminating customers. its a short term view). nor do they want to have compete (cause that will make them work harder) or make a good product (same as before). not do then even really want to have provide a product (same as before).

  21. Kalen

    Very interesting post about a talk about free trade, its practice on the ground not in Think Tanks’ reports and a political consequences or raising a specter of fair or controlled trade (not protectionism) among population.

    I found another more theoretical take of fallacy what is being pushed as global free trade and free markets:

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