One of the biggest signs of the breakdown in consensus on American trade policy is when an eminent member of the establishment turns against it.
Last Sunday, I wrote about the unraveling of the long status quo on “free trade” — really managed trade — and the potential consequences for Washington. The state is one net winner. But many others are net losers, and it shows in the positions of the presumptive presidential nominees of both major parties.
If you don’t believe me, read “Free Trade is Dead” in The Washington Monthly. It’s a dead-on jeremiad well worth reading in full. It says, “The public…sees in Trump’s and also Sanders’s comments the articulation of a possibly larger truth and the revelation of a possible giant confidence job.”
As important, the author is not some nativist or leftie but Clyde Prestowitz, who was a Reagan administration trade negotiator and vice chairman of President Bill Clinton’s Commission on Trade and Investment in the Asia-Pacific Region. You would be hard-pressed to find a better expert on the issue. He’s been critiquing trade policy weaknesses for some time. Now he is an apostate from the establishment.
Prestowitz rightly notes that “protectionism” was not always a dirty word. It was national policy from the 1800s to the Great Depression. Washington, Hamilton, Lincoln and Theodore Roosevelt were all protectionists.
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He also makes the point that the managed-trade agreements of recent decades have been done more for geostrategic reasons than to benefit American exports. While U.S. markets were opened, trading partners were allowed to operate by different, mercantilist, rules. The result has been a devastating trade deficit which translates into lost jobs and squashed wages.
“Amid these conflicts and debates,” he writes, “the fundamental founding myth of U.S. global economic policy — that America’s major trading partners were all dedicated in principle to free trade, and were all playing essentially the same game—was maintained.”
Economists and corporate leaders come in for especially trenchant observations:
- “It is important to emphasize here the significance of economists, whose role had become quite important in the wake of the Great Depression and who generally meant by the term ‘free trade’ not the reciprocal market opening that the public generally understood it to be but the unilateral opening of the U.S. market regardless of the actions of trading partners. Thus a country might close its market to U.S. imports while engaging in illegal dumping (selling below the cost of production and/or below the home market price) into the U.S. market, and most economists would call that a gift to U.S. consumers.
- “How did the experts get the forecasts so wrong? The main error was to view these as trade agreements when they were actually investment arrangements. Of course, they all aimed at opening trade, but the real, if unintended, effect was to make Mexico and China safe for direct investment. This was mostly driven by shifting views among business executives. In the past, they had tended to fight to keep their U.S.-based operations and labor forces working. Now, they began to see the offshoring of their U.S. activities and the importation into America of their own offshore production from low-wage countries as the new road to high profits and became enthusiastic backers of the deals.”
Things might go back to “normal” after the election. But I wouldn’t count on it.