The Mises Institute monthly, free with membership
April 1995
Volume 13, Number 4
After two years of pretending to be for free trade, the Clinton administration, backed by the
Republican leadership in Congress, finally 'fessed up. In their dealings with China and Mexico,
they shredded two centuries of economic wisdom, repudiated every principle of sensible
economic relations, and kicked taxpayers and consumers in the teeth.
Absent the Nafta and Gatt debates, this would not be news. Real free trade has few friends in
the
capital. Just as D.C. interferes with the rights of business, it curtails and prohibits imports and
exports, fiddles with exchange rates, and doles out foreign aid. Real free trade would mean no
subsidies, no trade taxes, no loan guarantees, and, for Heaven's sake, no bailouts of foreign banks
and governments.
Free trade would also require people like Mickey Kantor and Newt Gingrich to surrender
their
power over economic life. They would no longer be able to reward their friends and punish their
enemies with trade interventions. That's why we should no more expect Clinton and the
Republican leadership to give us free trade than we should expect them to stop taxing income
and capital: it's not in their interest to do so. They can only be stopped by public pressure and
threats.
At the least, they should not be able to get away with calling trade intervention a step toward
freedom, as they did during the Great Trade Debate, 1993-94. As they sang of the glories of free
trade, they cast opponents of trade treaties as protectionists.
But it didn't require the mind of Murray Rothbard to notice that Nafta and Gatt were
mercantilist
impersonators of free trade. These treaties were loaded with subsidies, regulations, loan
guarantees, bureaucracies, and trade-war artillery. For the U.S. government, among the most
import-restrictive in the world, to extol them as the essence of liberty was worthy of Orwell.
The free-market opponents of Nafta and Gatt were under relentless attack for opposing the
treaties as pseudo-free trade. But the smearbund did not refute our arguments; in the tradition of
wartime state propaganda, they called us isolationists and tried to shout us down as irresponsible
wreckers of political consensus. Meanwhile, those willing to do the work of the state and its
interest groups received lavish corporate subsidies and public approval by the Clinton
administration and the Republican establishment.
The treaties barely passed, the political parties blew off their free-trade posturing, and the
government began a round of unprecedented trade intervention. It wasn't a "trade war," because
the victims couldn't shoot back. But in terms of expense to the consumer and taxpayer, it was the
most costly protectionism in history.
The White House zoomed export subsidies on wheat sales to China, the same country it had
accused of horrible trade crimes only two weeks earlier. Under the deal, the Chinese government
will save $2 billion off the market price for American wheat. The difference is paid by the
taxpayer, who is robbed by the Department of Agriculture, which buys the wheat and sells it
again at a discount. By lifting demand and diverting resources, this policy also drives up the
price
of wheat for the American public.
Export subsidies have long been part of U.S. policy. (Stalin, for example, bought American
wheat for less than American taxpayers could.) Such subsidies are designed to benefit particular
domestic industries at the expense of the consuming public, and the elite's foreign-policy
scheming. They are pure protectionism and should be stopped.
The U.S. government once claimed these subsidies as necessary because other countries
employ
them. That's like saying: "foreign governments are punishing their people to reward their special
interests; we should copy them."
Mickey Kantor had told us such practices were a relic of the past, thanks to Gatt. That was
just
one of his tall tales, and this policy proves it. Notice too that the Chinese aren't accusing the U.S.
of "dumping." They, unlike our trade officials who spend billions litigating anti-dumping suits,
know a good deal when they see it. The Chinese welcome below-cost wheat so long as it lasts,
but let them return the favor to U.S. consumers, and Kantor will throw a fit.
When our bipartisan government threatened to increase taxes on American imports from
China
by $1 billion, it brutalized Chinese industries not being subsidized. This is the world record for
threatened trade sanctions, a dubious honor. And who would pay for these sanctions? You
guessed it: American consumers of imported goods like Chinese bicycles, surfboards, and fishing
rods--bikers, surfers, and fishermen lacking lobbies.
The justification for this threat of a tax increase (that's what higher tariffs are) was the claim
that
China failed to protect "intellectual property rights." But what exactly does this mean? Movie
studios, for example, can't get the kind of overseas patent and copyright protection they want for
their products, says Mr. Kantor, a former movie-industry lawyer.
But this is the risk of being an exporter. If Hollywood doesn't like the way the Chinese
government handles these matters, it should lobby Beijing, bribe its officials, send Sharon Stone
over, or simply shut up. It should not lobby Washington to play high-stakes games where
American prosperity is put on the line. American consumers should not be taxed because big
corporations claim their profits aren't high enough. Moreover, it's not the job of the U.S.
government to be world policeman in this sense either.
The U.S., at the behest of powerful U.S. industries, ordered China to shut down 29 factories.
When China mostly complied, it was not a victory for free trade, but an example of imperialism.
The Chinese initially said this was an invasion of their national sovereignty, and they're right. No
one put Mickey Kantor and his friends in charge of the laws of other nations.
The hidden reason for the sanctions is that China hasn't joined the World Trade Organization,
the
bureaucratic monster created by the recent Gatt treaty. Mr. Kantor wanted American consumers
to be looted until the Chinese surrendered. If we needed evidence that the WTO and free trade
are opposites--which savvy observers did not--this is it.
Those who trumpeted Free Trade were the same folks who brought you the $50 billion
handout
to Mexico, which was really a bailout of U.S. investment houses and big banks that risked their
capital in a socialist country. When a foreign economy falls apart under real free trade, we'd say:
tough. Capitalism is the profit and loss system. But under Nafta, profits are private
and losses are
socialized.
After the Nafta trade bloc was rammed through Congress, U.S. exporters were breaking
piñ;atas
and shouting, Olé;! But as the peso fizzled, so did their profits. In the old days, investors
scrutinized the soundness of foreign currencies before investing, and took their lumps if they
were wrong. Now, the more vulnerable their position, the more they can count on long-run
profits at others' expense.
Never trust a government-to-government trade deal. They were rare in the 19th century when
trade was largely free, but in our century of trade wars and real wars, they are more common than
ever. Government-to-government trade deals ultimately subvert free trade, for their purpose is to
reward favored business, prevent territorial competition for low-tax environments, and squeeze
small business out of the international economy.
Every government intervention, here or abroad, skews the producer-consumer balance,
makes
economic life more uncertain, and strengthens the state. That's why economic life should be
protected from any taint of politics.
In those few horrid weeks in January 1995, Clinton and the Republican elite implemented the
hoariest mistakes of mercantilism, looted the consumer, put Wall Street on welfare, and
expanded the power and reach of the central state.
Is there nothing to be grateful for? Well, Messrs. Clinton and Gingrich have stopped
lecturing us
on free-trade theory--until they start campaigning to spread the Nafta disease throughout the rest
of this hemisphere, and the state's propaganda apparatus swings into action once again.
-------------------------------------------
Llewellyn H. Rockwell, Jr. is president and founder of the Ludwig von Mises Institute
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