March 19, 2004
What Price Unilateral Free Trade?
Question: is the sole purpose of humankind to consume goods? And if so, to what end? How much stuff can you accumulate before it’s too much? How far do you chase prices downward before the interest of societal preservation takes hold? How much profit is too much, or is there such an idea in the free-market mindset?
A fellow WatchBLOG editor bade us all to read a paper written by Milton and Rose Friedman The Case for Free Trade, and I am stunned by the near-sidedness of their collective viewpoint. This paper is totally divorced of common sense and the real world understanding, or values that would make it germane to the realities of today.
Nobel laureate or no, the man makes little practical sense; he is after all an economist. The Friedman’s paper leaves aside the fact that people are more then the sum total of their pocketbooks. In a vacuum the Friedman’s stance on free-trade would be laudable, but we do not live in a vacuum, we live among other living breathing greedy human beings who last thought is free-trade. Just yesterday the U.S. filed its first claim against China in front of the World Trade Organization (WTO), to protest Chinese governments’ illegal protection of its semi-conductor industry.
The answer one day might be free trade, but that day is not here, and the time is not now. We have our own self-preservation to consider, or should we in the name of free-trade and lowest possible consumer prices disregard that as well?
We could say to the rest of the world: We believe in freedom and intend to practice it. We cannot force you to be free. But we can offer full cooperation on equal terms to all. Our market is open to you without tariffs or other restrictions. Sell here what you can and wish to. Buy whatever you can and wish to. In that way cooperation among individuals can be worldwide and free.—Milton Friedman and Rose Friedman, The Case for Free Trade, Hoover Institute, Hoover Digest 1997 No 4.
Let’s take the Friedman illogical argument to its logical conclusion. We throw open the doors to all nations to freely trade with the U.S. How long would it be before what is left of the U.S. manufacturing sector vanishes in the name of free-trade; 10, 15, 20 years? How many more white collar service jobs would be outsourced to the lowest bidder; 1 million, 2, 5, fifteen million? The U.S. economy would suffer irreversible damage, as one industry after another vanished over the horizon of free-trade: ship building (military and commercial), steel, heavy construction, aircraft manufacturing, tank building, munitions, textiles, semiconductors, appliances, electronics, automobiles, heavy vehicles, farm equipment, die-casting, computers, building materials, paper products, plastics, aluminum, etc., all gone because they would no longer be able to compete on the uneven playing field of unabashed world trade.
Make no mistake, if the U.S. were to unilaterally lift tariffs the playing field would not suddenly equalize despite our principled(?), foolish and self-destructive stance. The rest of the world is inhabited by folks just as greedy as us; wishing for civility will not make it so; hoping for integrity and fair play, ignorant.
Agriculture would follow the manufacturing and service sectors and soon we would no longer be able to feed ourselves, but depend on other nations for our substance, as consumers flock to lower priced foreign produce. Within say 15 years the agriculture industry would be in shambles as the world dumped its unregulated produce on U.S. shores.
What then would we have to offer the world to trade? We would in effect manufacture and product nothing! Job loss would be staggering, far exceeding what we see today; can you say depression? And as U.S. small businesses (reportedly the largest employers of American workers), fold in droves, or ship jobs and large U.S. business overseas in a bid to survive, either relocate entirely or outsource every job possible, the tax base shrinks, and the standard of living plummets. Massive job lose shrinks the tax base even more, and states are forced to drastically cut social services. And the unthinkable occurs: the federal government defaults on some long term bonds and worse yet, teeters on the brink of bankruptcy, the result of too much debt and not enough funds to pay even the interest on the bonds (Treasury Notes). State and federal governments lay off thousands of workers, and shut down whole agencies in a bid to save money exacerbating the already historically high unemployment situation, and worsening the depression.
Homelessness rises to epidemic proportions as Americans lose their homes to foreclosures because they lack jobs, and racked up too much debt in the pursuit of goods, cheap or otherwise. Diseases long thought under control tear through the inner cities, because basic health care is now a pay as you go affair and most Americans no longer can afford it. Across the U.S., counties long the last refuge of the un-insured by-and-large can no longer afford to run county hospitals, and even doctors apply for unemployment. Need I speak to the devastation a shrinking tax base and rising population would have on Medicare and Medicaid?
Crime rises to historical highs as police forces around the country are slashed, and drug use spreads unabashed to all corners of the American society, fueling crime sprees heretofore unrealized in America. In some large cities, Marshal Law has been declared as the populace becomes increasingly unruly and restless without jobs and hope.
The nation infrastructure crumbles for lack of skilled labor and cash; bridges, roads, rail road tracks all fall into disrepair. Phone service becomes unreliable, and electrical blackouts common as the utility companies search for skilled labor to effect repairs.
The U.S. military, once the world’s greatest, is a showdown of its former self. Navy ships lie at pier-side because there is no money to buy fuel from foreign suppliers who are charging a premium for it, or because they are in desperate need of repair, but there are no U.S. ship yards left to do the work. Pilots (all services) cannot log enough flight hours to remain combat ready for the same reason, and because military aircraft now have to be shipped overseas to be repaired, hundreds lie dormant awaiting spare parts or service. The military has cut manpower drastically no longer able to afford the personnel to fight a one-front war, let alone three. The U.S. closes bases across the world, leaving power vacuums to be filled by who else, but China and India.
China becomes the predominate economic and military power in the world, and Taiwan finally falls to mainland China. Without the U.S. to counter balance it, China turns is sights on its old nemesis Japan and threatens invasion. Skirmishes are now common along the Chinese Indian boarder, as both flex their newly acquired muscles…need I go on?
Posted by V. Edward Martin at March 19, 2004 03:00 PMI don’t think we should flush Mr. Friedman down the toilet just yet. Come Monday morning maybe, but not today.
However, Mr. Friedman does seem to worship the “invisible hand” of the free market like a religion, while ignore the little guy being crush by the steamroller.
It would be really nice if we could just close all the ports and ignore the world. But if we are going to keep buying foreign oil and products then we will need to pay for them with something. An that means trade and trade agreements.
Foreign entanglements and insatiable human consumerism is going to make it very tough (if not impossible) to isolate the country from the global mess we are currently in. Nothing short of another great depression is going to change the course of this country. My grandparents lived through that and it was not fun!
intrestin take, I don’t understand economics!
Posted by: martin at March 19, 2004 03:50 PMWhile I am pleased that you went to that article and decided to review it, I do not see these arguments as much more than prediction is it is devoid of economic analysis and relation to facts or history. Basically its a sky-is-falling analysis which I have heard from people like Pat Buchanan. Now let me ask a couple of questions to get us back in check:
1. can you point any evidence of EVEN ONE country that has decreased its standing the world, its ability to protect itself or any of the other horrors that you point to through free trade? I cannot think of one- rather I can think of many who have withered on the vine from closing themselves off from the world.
2. If you cannot think of one, what makes you so sure you are correct about all of these dire predictions? Absent some evidence that this has happend or that their are accepted economic models that predict this outcome from free trade, this is just a counter-factual thought experiment. In fact, today, we have the free-est trade of any major country in the world and still have BY FAR the strongest military- hmmm..
As for Friedman being a little unrealistic in the way he wants to implement his (correct) free trade principle, I would agree with you on that much. We need to strengthen the WTO (first, we need to stop violating it with grain subsedies, steal tarrifs ect), and make sure all country come under its pervue, so we do build toward an equal playing field. In the meanwhile, we need to work toward opening up our trade in areas like grain subsedies and not put legal barriers in front of companies who want to say, move jobs to india.
My philosophy about free trade is actually connected to my philosophy in regards to foreign policy in the military sphere, which is why i supported the war with iraq (nothing to with WMDs). I believe the goal of the free world should be to take out every dictator in the world and replace them with regime that respect freedom, free exchange and individual rights. In such a world, the problems with China currently happening would not happen. I would prefer that this be an international organization like the UN, but that is clearly not going to happen with countries like China, France on the security counsel. China because they wont support a policy that would undermine their justification for their dictatorial rule (sorry David, thats what they are), and France because they couldnt care less about the rest of the world (unless they are former colinies of France, that is).
So free countries and free trade- lets work toward that goal together. even you said “The answer one day might be free trade”- lets agree to make that day as soon as possible.
Posted by: Misha Tseytlin at March 19, 2004 03:53 PMMisha, I am sorry to say this, but your comments above do not appear to take into account the historical period between 1885 and 1929. Mr. Martin’s scenario is predicated on facts established during that period.
I will admit, we would probably intercede before the final outcomes Mr. Martin predicts came about, perhaps even by violent revolution. But the fact is, in terms of an industrial or post industrial situation, the years I quote above are the only historical record we have of as pure a free market capitalist society as stands on record. And it did result in the depression Mr. Martin predicts.
These are historical facts to be found in 10’s of thousands of history books. You can try to spin the facts, but, persons with even a cursory education in history will not listen to it.
Posted by: David R. Remer at March 19, 2004 04:57 PM“We throw open the doors to all nations to freely trade with the U.S. How long would it be before what is left of the U.S. manufacturing sector vanishes in the name of free-trade; 10, 15, 20 years? How many more white collar service jobs would be outsourced to the lowest bidder; 1 million, 2, 5, fifteen million? The U.S. economy would suffer irreversible damage, as one industry after another vanished over the horizon of free-trade: ship building (military and commercial), steel, heavy construction, aircraft manufacturing, tank building, munitions, textiles, semiconductors, appliances, electronics, automobiles, heavy vehicles, farm equipment, die-casting, computers, building materials, paper products, plastics, aluminum, etc., all gone because they would no longer be able to compete on the uneven playing field of unabashed world trade.”
Why do you think this would happen? Microsoft didn’t have tariffs. I hear they do quite well. I like being able to afford a high-quality low-cost car. I wouldn’t have been able to back in the old days of the Big Three. Computers aren’t particularly protected, yet I’ve noticed that the US does quite well with them.
Advocate that we spend government money training those who lose work because methods have made them inefficient, and I’ll be right there with you.
The invention of the fax machine and e-mail doesn’t cause me to lament the postal workers who are no longer needed. The invention of the car put many buggy manufacturers out of business. When it is efficient to do something another way it doesn’t cripple our economy, it makes it better. The same is true with outsourcing.
Besides, protectionism boils down to the attitude you love to tar Republicans with. ‘We are rich. They are poor. Why should we put our wealth at risk by allowing them to try for it?’
Posted by: Sebastian Holsclaw at March 19, 2004 06:34 PMDavid- I hope you are kidding. Check out the following url- http://www.u-s-history.com/pages/h963.html
the period you mentioned is the period of the highest protective tarrifs in american history.
1890: “McKinley Tariff Highest protective tariff to date: average 48 percent.”
1897: “Dingley Tariff Blatantly protective measure; some rates at 57 percent.”
1909: “Payne-Aldrich Tariff Attempt to lower average level of duties; little meaningful reform; Progressives angered. “
1930: “Hawley-Smoot Tariff Raised U.S. duties to an all-time high; 1,000 economists protested; foreign retaliation.”
I hope you can admit you are wrong on this one, David, thats pretty overwhelming.
David,
Misha is right. You really should check that. The depression was not a result of free trade. Rather the opposite.
Posted by: Eric Simonson at March 19, 2004 11:08 PMSo I checked out the Friedman article, which turns out to be “adapted” from a book he wrote in 1980, the same one my Republican civics teacher had us read in high school more than 20 years ago. I know it’s the gospel of a great man and everything; next we’ll be considering Ayn Rand. Lots of Libertarians are atheists but it’s great that they didn’t give up blind faith.
Posted by: Vic Perry at March 20, 2004 08:09 AMI know it’s the gospel of a great man and everything; next we’ll be considering Ayn Rand. Lots of Libertarians are atheists but it’s great that they didn’t give up blind faith.
Was that supposed to be a rational argument, or a general “d00ds, you suk” sling?
This theme keeps coming up again and again, especially in debates about capitalism (e.g Walmart) and free trade. Proponents cite a boat-load of evidence and arguments, and all that they get in return is a “you have no feeling, compassion and common sense” blanket.
Posted by: Vivek at March 20, 2004 09:00 AMWho actually chooses these “feature articles”? This article purports to be a critique of Freidman but it gives no substantial evidence to back any of his claims. Instead, the author uses creative writing is completely ridiculous. This “feature article” is just demagoguery gone insane. Free trade increases efficiency of production freeing people to other more productive avenues. You assume that china will continue to increase its advantage in consumer products, but you assume that this will also continue into more advanced products. China can not even build a modern jet fighter; their industrial might is not as scary as you say it is. Your claim that our agricultural production will also go abroad also ignores how freaking productive our agriculture is, we feed the world and because we have the most advanced farming techniques that are not affordable in the rest of the world. If anything our declining educational system should be the concern, that our children are not getting the education necessary to compete in the globalized world.
Posted by: Miguel at March 20, 2004 09:38 AMMiguel,
China can not even build a modern jet fighter; their industrial might is not as scary as you say it is.
I’m curious, is it American arrogance or just plain ignorance that allowed you to make such a statement? I’ll gamble that both can be found in equal measure in your flawed reasoning. Even a cursory search on the Internet would have yielded the result I present below. The Chinese in fact have a fairly robust military aircraft industry, and the eight aircraft listed below are just some of the fighters they build. Granted some of the most advanced aircraft in the Chinese Liberation Air Force, are of Russian design, but these designs have been altered by the Chinese and adopted for their own use.
Such nearside, haughtiness tainted logic was thrown at the Japanese in the 60’s and 70’ and they repaid the favor by taking our consumer electronics industry, a fair percentage of the secondary computer chip market, all of the computer peripherals market, half of our automobile industry, a quarter of our steel industry, and almost half of our shipbuilding industry. And in the process Japan surpassed all of the western democracies to become the world’s second largest economy; and this without any natural resources! Shall we dance with sister conceit and make the same mistake twice inside 100 years?
News Flash: The Chinese have the bomb, as in nuclear bomb, and have had since 1964. And yes, they built it all by themselves. And they have Intercontinental Ballistic Missile’s (ICBM) and are soon to have a functional Submarine Launched Ballistic Missile (SLBM), and a real submarine to launch them.
The following information can be found at: (www.sinodefence.com)
- JH-7 Fighter-Bomber Aircraft: Manufacture: Xi’an Aircraft Industry Corporation
- Q-5 Attack Aircraft: Manufacture: Hongdu (Nanchang) Aviation Industry Group
- Next Generation Multirole Fighter Aircraft (J-XX): Manufacture: Shenyang Aircraft Industry Co. (SAC)
- F-7MF Multirole Fighter Programme: Manufacture: Chengdu Aircraft Industry Corporation (CAC)
- J-10 Fighter Aircraft: Manufacture: Chengdu Aircraft Industry Corporation (CAC)
- J-8 Interceptor Fighter: Manufacture: Shenyang Aircraft Industry Co. (SAC)
- J-8B Fighter Aircraft: Manufacture: Shenyang Aircraft Industry Co. (SAC)
- J-7E Fighter Aircraft: Manufacture: Chengdu Aircraft Industry Corporation (CAC)
Your claim that our agricultural production will also go abroad also ignores how freaking productive our agriculture is, we feed the world and because we have the most advanced farming techniques that are not affordable in the rest of the world.
Yet another statement made in arrogance and ignorance. I enjoyed a container of blackberries last night imported from Chile, and this morning ate a plumb from Mexico. Our bananas are by-and-large imported, as is our coffee, 75% of our shrimp, at least the same percentage in Tuna. Yes American farmers are very efficient, and yes they provide the world with a fair amount of foodstuff, however other countries also have a thriving agricultural industry; Brazil, Mexico, New Zealand, Argentina, Canada, France, Britain, Germany, Ecuador, Costa Rico, Venezuela, just to name a few.
The truth of the matter is the American sector is heavily subsidized by the Federal government. Under Mr. Friedman’s tenets of free-tree those subsidies and any associated tariffs would have to end. We already import beef from Argentina, lamb from New Zealand. Anyone who grocery shops on a regular basis knows that the price of meat (chicken, pork, & beef) in this country is artificially high, free-trade would no doubt bring those prices in more line with demand, but again at what cost to the American farm sector.
Even with subsidies the family farm is fast disappearing in America, replaced by large national, and in some case multinational concerns. Farming is tough business. Make no mistake true free trade would be the final death of the family farm. It would also mean lower prices, but at what cost to our health and subsistence?
As for the last, the blame lies in the decaying state of the American family, which can only be bolstered by allowing gay marriage, but that is a discussion for another day.
Sebastian—
I have to admit that most of your comment makes little sense to me; what does Microsoft have to do with the current discussion? Perhaps you could explain the link better. As for computers: most of them are made in Asia, or of Asian parts assembled in the U.S. I defy you to find a laptop computer made in the U.S.
The U.S. postal service is one of the largest employers in the America, and last I looked they have not laid anyone off, ever. Fax machines and email did not make postal mail obsolete; indeed the postal service recorded a record profit last year.
I was using hyperbole when I said that china could not develop a modern jet fighter, they are attempting to build a more modern air force, based on 1980’s designs of American and Russian designs. What I was trying to point out is that they are behind the US in advanced manufacturing capabilities. Here is a source to back me up:
“By and large, Asia remains a market, not a maker, of truly advanced military aircraft. Those countries with their own aviation manufacturing industries are mainly producing American or Russian versions under license. China, with the largest research and development program, is building several new fighters, but many are derived from Western designs. These are modern aircraft, though not on the cutting edge. When the planes enter service after 2000, China will have mainly replaced its huge numbers of 1950s-era aircraft with 1980s models.”
From: http://www.asiaweek.com/asiaweek/98/0306/aa5.html
You take a very mercantilist approach to economics, and it’s very sad that you apparently have not read anything on the subject beyond your own intuition. There is not a limited about of money in the world; money and wealth are increased because of globalization. It is difficult even beginning a conversation on the subject because you don’t even know what questions to ask. The real losers in globalization are not the US or Europe, it is those countries that are not industrialized or educated. There cheep imports destroy local production, drive out local products with noting to replace it because the people have no skills beyond rudimentary farming. Those are the real loser of Globalization not US. A wall around America would only make things worse, as Chairman Greenspan said, and I paraphrase, the 200,000 jobs we lose because of outsourcing is nothing compared to the 6 million jobs we gain because of other countries employing Americans in America.
-Miguel
Posted by: Miguel at March 20, 2004 06:58 PMThank you Misha, you make my point precisely. What do capitalists want most from government? Protection for their markets. What did that laissez faire government provide capitalists, the very protection they sought. What did Bush do almost immediately after taking office? Slap steel and other tariffs on foreign imports - who lobbied and gave campaign contributions in the hopes of such tariffs being implemented - well, one need only look at the donor list.
You ask me to admit I am wrong. That is truly perplexing when you provide the very details to prove my point.
Mr. Martin’s question at the very beginning of his article is one of the most important questions facing our nation. Just how much consumption can we afford before we bankrupt ourselves as a result. President Bush and the Republican Congress are setting the stage for one answer, and the record number of personal bankruptcies will provide another answer - pretty much the same answer though. Spending exceeding revenues. Capitalists of course are gleeful at such consumption and revenues and profits without realizing that the promise to pay is weakening steadily.
Posted by: David R. Remer at March 21, 2004 01:52 PMDavid- I asked the following question:
“can you point any evidence of EVEN ONE country that has decreased its standing the world, its ability to protect itself or any of the other horrors that you point to through free trade? “
You answered:
“Misha, I am sorry to say this, but your comments above do not appear to take into account the historical period between 1885 and 1929.”
Then i pointed out to that during that period was the LEAST FREE TRADE WE EVER HAD. The problem with your argument is its based upon what BUSINESS wants, not what FREE TRADE truely is. Business want protectionism somtimes, they want free trade other times- your argument confuses the philosophy you say those who were in power during those days had (free markets at home) with the policy in terms of trade they had (closed markets for imports). In reality, you and Mr. Martin are on the same side as those in control during that period of time in terms of protectionism, while I am against them… your policy would replicate the policies that led to the great depression (protectionism), while mine would go in the opposite direction (by opening up markets). Clearly the evidence from that period cuts in FAVOR of free trade- how can you possible deny that?
my point is not pro-busiess, it is pro-free trade. Both you and Mr. Martin failed to provide me even one example of FREE TRADE causing the problems that are claimed by this article. Not one example. I will be content with allowing the blogwatch readers to draw the infrences they wish from this complete lack of evidence for this hypothesis.
I will put this clearly, and I want your direct response to the following question:
“How can you cite evidence from the era with the least free trade in American history, talk about how bad that era was, and then say that this supports an argument against free trade?”
Posted by: Misha Tseytlin at March 21, 2004 03:08 PMMisha, they both stem from the same seed. Corporate influence upon government. Whether it be free trade, protectionism, whatever corporations want from the government, they usually get, because they have political campaigns attached to their wallets.
This year it is free trade they want for labor markets, but protectionist tariffs on imported products. And yes, corporate American has received both from this President’s administration. The point is, this is not government of the people, by the people, for the people, it is government of, by, and for the corporate interests regardless of how contradictory in philosophy or damaging to quality of life for Americans those corporate interests may be up to the point that the people rebel en masse.
Posted by: David R. Remer at March 22, 2004 01:22 AMBTW, I recognize Bush’s political ploys for what they are. He proposes clamping down on leasing tax loopholes on corporations on the one hand and lowering their obligations by many times that amount with the other hand and tax cuts across the board. Corporations come out in the net with a windfall from the President while he gives his pundits something to defend his record on representing the interests of the people. Sham, is all it is.
Posted by: David R. Remer at March 22, 2004 01:32 AMSo i guess the only conclusion I can draw is that neither of you are able to find a single instance in a country in which free trade had any of these predicted effects. that was my key point, and why I think in the debate between my article on this topic (http://www.watchblog.com/thirdparty/archives/000945.html#more) and this one, the side of free trade must clearly win out on theory AND on emprical evidence. i think any fairminded person who reads the two articles and the responses will come to that conclusion.
On your points (which still do not answer whether free trade has ever hurt a country), we could eliminate all corporation loop holes by going to a flat tax with NO loopholes, we could eliminate all kick backs to corporations in trade deals by have free trade across the board.
The problem is that once you give the government the power to control these things, they WILL pay off the interests of those who help them get elected-be in the populist bribing the key voters path of latin america, or the corporate kick backs of our america. This is my point, as always, the government must be limited wherever its practical. we cannot give it the power to set selective tarrifs, it will give benefits to the special interest groups (you say corporations, but its really UNIONS- see the steal tarrifs). If you give it the power to have a non-flat tax, it will put all kinds of loopholes into the tax system. If we have flat taxes and no tarrifs, none of this will be an issue.
I would remind you, that special interests come in all colors. Whether they be ones you dislike strongly (the corporations) or ones you might like more (teacher’s unions, AARP, labor unions). None of them are out for the american people are the common good- they are all out for themselves and their own interests. The only way we can really solve this problem is by limiting the sphere of what the government can and does control, otherwise good polices, like free trade, will continue to get shafted whenever a labor union or a protection-seeking airline put strong preasure on enough people in power.
Posted by: Misha Tseytlin at March 22, 2004 01:49 AMMisha, your article is based on a false premise. There is no such thing as free trade except in the minds of economists. There has never been a period of time in which free trade ever really existed across the board domestically and internationally. And there never will. How about you showing us a time when the Platonic concept of the Ideal called ‘free trade’ ever really existed in this concrete world of human affairs?
Posted by: David R. Remer at March 23, 2004 02:18 AMMy point is that more free trade leads to the following good outcomes: (1) more prosperity at home; (2) a stronger nation at home; (3) better conditions for people who get the jobs “outsourced” to them abroad.
Its not that total free trade has ever existed, or that total non-trade has ever existed, but that MORE free trade is always good, and that the so-called consequences of free trade are just made up scare tactics with no basis in history, economic theory or fact.
No country has been more aggresive toward free trade than America post-WWII, and no country has ever become as strong, prosperous, economically well off ect ect. This is not a coincedence (of course I grant that we are nowhere near full free trade, but just use Ockham’s razor on this one).
it also not a coincedence that nations in latin america who chose LESS free trade went down the tubes while countries in Asia that chose MORE free trade had great economic success (despite just about the same starting points right after WWII).
My point is not about total or none-total free trade, but that more free trade is a good and less free trade is bad. The (continued) failure of anyone to point out nations who have compromised their security OR prosperity in the ways talked about in this article only backs up my point further. My challenge still stands.
Posted by: Misha Tseytlin at March 23, 2004 03:25 AMAs a result of the monopoly of making money, we in the now very rich countryes, is creating a field where funtamentalists as Bin Laden can harvest his much dreaded crop - very desperately, trying only to survive, poor and undereducatet people, to help “Fight the Devil” for him.
He is, unfortunately, their new hope for a better living - not us.
The United Nations Decleration of Human Rights from 1948 § 23, is so easily……forgotten.
The direct consequenses of this agricultural polici, 9-11 is not.
Birgitte, Denmark
