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No, Free Trade Didn’t Take Your Job

by | Feb 21, 2017

From the moment the new President was sworn in, the punditry has been forthcoming. Professional opinions asked themselves how it could be and what on earth it might look like. For his part, Trump has provided and continues to provide much to discuss. From his patent lies, to his complete ineptitude in the area of statecraft, talking heads are burning through the  24/7 news cycle. What’s lost in this thicket of absurdity are important questions which are going unanswered. While the left experienced a complete meltdown, most of the criticism from the right was directed towards the social justice phenomenon. The efforts of a cultural elite targeting those who bear fidelity to the values of the American heartland. The collapse of the American working class has been largely avoided.

In fairness, the topic has been addressed, though not sufficiently. A number of popular conservative publications have made arguments as to why free trade is a benefit to the American worker. Even progressive economists such as Paul Krugman have begun to sing the praise of the value chains and comparative advantage. Despite their efforts though, Trump’s constituency heard few of such pleas for sanity. While National Review dedicated entire publications to the cause, middle America continued to fill seats at trump rallies. Sophisticated arguments for globalization went almost completely unnoticed.

To be honest, this is standard fare in politics. If sophisticated arguments were ‘make or break’ criteria for elections, history would have been written differently. When libertarians start to question the merits of free trade, it is time to worry. Over the past few months, free marketeers have been losing ground to a relatively new and apparently attractive alternative. This populist wave which has swept middle America reeks of protectionism and neo-mercantilism. It’s also been startlingly difficult to combat intellectually. Many who are sympathetic to theory of free trade are just tired of waiting for it to yield results in practice. Despite the opening of markets across the globe, there seems to be no debate. The American worker has paid a price.

What is the cause?

Libertarian economists are in an interesting position. For decades, they have espoused theory while sitting far away from the reins of power. Naturally, when some ill effect of economic policies enacted by the state bear rotten fruit, it’s easy to deflect responsibility. When it comes to the area of free trade, the waters are a little muddied. The fact is that America has seen an unprecedented opening of markets since the 1950s. American workers however, have perceived a decline in relative income while more and more goods marked ‘Made in China’ fill their shelves.

Why is logic of the economist so strong but so incompatible with the perception of the worker? The answer is in how America got to where it is. In a previous article, I explained the rise of the dollar and the impact on American foreign policy. The implications for American trade and industry hit more closely to home. The truth is that free trade has been hurting the US. Though not in the way commonly argued.

Dollar Dominance and the Regulatory State

With the emergence of the dollar as the global reserve currency, American consumers gained tremendous advantages in the global market. Foreign industries competed for capital investment sponsored by US firms and American workers hardly noticed a change. Goods were getting cheaper while advancements technology pushed the standard of living to new heights. But slowly American workers started to demand more from the state. At first, as with all interventions the impact was negligible. A few safety regulations here, some environmental considerations there, raise the minimum wage once or twice. Americans became greedy. With goods overseas so cheap, and plenty of money flying off the printing press the US economy underwent a dramatic transformation. Suddenly it was impossible for Americans to compete with their international competitors. but nobody noticed. The punch tasted too good.

All of this seemed destined to last forever. That is until the money ran out. Slowly but surely, gains made through free trade, were channeled into empire building, by taxes or regulation. American industry is now prohibitively expensive. The Rustbelt is a real phenomena and American workers across the country feel like they are in a vice. They have gotten so rich from their status as makers of the world’s money, they have completely wrecked their economy. What’s worse is that they blame the very boon which permitted them such extravagance. That boon is the thread holding what’s left of the American economy together.

Is There Any Hope?

Alfred McCoy, Professor of history at University of Wisconsin, Madison once posited that this subsidy from the Rest of the World was vital to the US interest. He recognized the substance of the argument I made here, but his view however, was more depressing. Without it he suggested, our economy would fall into ruin. Well, he was only half right. Without this subsidy, our economy would go through a transformation. What shape that took would depend on the attitude of the American worker. Will they blame free trade or the regulatory policies that free trade enabled? Well that will depend on the persuasiveness of our arguments. If Americans accept that the blame for this situation lie in the very policies they advocated for? Well, they will likely demand their economic rights back. If not… Politicians don’t like to give up power. I fear them much more than I do China.

About James Reilly

James Reilly is an independent opinion writer and foreign/financial policy analyst. He is a former Chief Operations Specialist with the US Navy and holds a B.A. In Economics from Carthage College. His work has been featured by publications such as the Ron Paul Institute for Peace and Prosperity, the Libertarian Institute, LionsofLiberty.com, and financial blogs such as NakedCapitalism.com.

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