NPR featured an unintentionally funny piece
this morning on Donald Trump’s views toward the EU and free trade. The guest,
former US ambassador to the EU Anthony Gardner, rightfully criticized the
president’s view that “protection will lead to great prosperity and strength,”
and called for continued global engagement by US companies and
consumers. But he revealed, perhaps inadvertently, what political actors
mean by “free trade.”
Specifically, Gardner expressed great
skepticism towards the prospect of the US striking a bilateral free-trade deal
with the UK, supposedly one of Trump’s top objectives in his upcoming meeting
with new Prime Minister Theresa May. Free-trade agreements are complex, Gardner
informed us, and negotiating one will be neither easy nor quick.
Why? To economists, free trade means the
absence of government interference with trade: no tariffs, quotas, subsidies,
or other interventions, explicit or implicit. To politicians, “free-trade”
means a complex set of managed trade policies (Gardner even referred to the
solemn obligation to “write the rules for global trade,” which in his mind
is something either our government does or a foreign government does). Which
imports will be taxed, and at what rates? Which exports will be subsidized, and
at what levels? How will labor, environmental, and social policies be enforced
by domestic and foreign governments? For government officials, countries are
engaged in “free trade” when they agree on a complex package of explicit and
implicit taxes and subsidies such that neither has a special advantage over the
other, nor is disadvantaged relative to some other trading partner (however
such advantages are defined).
As Murray
Rothbard once wrote,
If authentic free trade ever looms on the
policy horizon, there’ll be one sure way to tell. The
government/media/big-business complex will oppose it tooth and nail. We’ll see
a string of op-eds “warning” about the imminent return of the 19th century.
Media pundits and academics will raise all the old canards against the free
market, that it’s exploitative and anarchic without government “coordination.”
The establishment would react to instituting true free trade about as enthusiastically
as it would to repealing the income tax.
“In truth,” as Rothbard noted, “the
bipartisan establishment’s trumpeting of ‘free trade’ since World War II
fosters the opposite of genuine freedom of exchange.” The Bretton Woods
organizations (the World Bank and IMF) and modern trade agreements are based on
the mercantilist ideas that exports make a country wealthy, imports make it
poorer. (Indeed, Gardner in the interview above worried specifically that a
collapse of the EU would make it harder for US manufacturers to sell their
goods in Europe, but said nothing about the advantages to US and European
consumers of a reduced supra-national government). That’s why governments have
little interest in genuine free trade.
About fifteen years ago I was part of
a delegation of US officials on a fact-finding mission to Singapore, in
advance of a potential US-Singapore bilateral free-trade agreement. (We all
have skeletons in our closets.) One of our tasks was to interview US businesspeople
operating in Singapore to see if they thought the Singaporean government was
unfairly subsidizing local companies at their expense. The idea was to use this
as a bargaining chip: “If you don’t stop subsidizing your domestic
manufacturers, we won’t stop subsidizing ours.” (Turns out the Singaporean
government wasn’t doing much to help its own companies, so the point became
moot.) It didn’t seem to occur to anyone that, even if the Singaporean
government were protecting its own firms, at the expense of its own consumers,
the US would not be better off by subsidizing its own exports to Singapore, as
mercantilist theory claims. The idea that the US should simply refrain from
interfering in peaceful exchanges between US-based and Singapore-based entrepreneurs,
investors, and consumers — i.e., support for free trade — was simply too crazy
to contemplate.
Note: The views expressed on Mises.org are not necessarily those of
the Mises Institute.
Peter G. Klein is Professor of Entrepreneurship at Baylor
University and Carl Menger Research Fellow at the Mises Institute. He is author
of The Capitalist & the Entrepreneur: Essays on
Organizations & Markets along with other books and articles. He
blogs at Organizations
and Markets.