Free trade

As a longtime critic of the Clinton administration’s “free trade” agreements, I’ve lately been mocked by liberal friends who suspect I’m sympathetic to the “plan” hatched by Donald Trump and his senior advisor on trade, Peter Navarro, to “ruin” the country with indiscriminate import tariffs. This sort of jokey ridicule goes with the territory when you jab at neoliberalism from the left. Bill Clinton still has legions of fans among the Democratic party establishment and its media acolytes, and it’s hard for them to face up to the fact that the former president’s economic policies have led directly to Trump’s election as president not just once, but twice.

There is a vacant lot at the edge of downtown Philipsburg, Pennsylvania, my hometown. Three years ago, a handsome, sturdy brick factory building stood in that lot, albeit most of the windows were broken, as it had been abandoned for years. After it closed, the building became a favorite hangout for ne’er-do-wells, whose act of arson forced its recent demolition. For decades, though, the clothing factory employed thousands of people and made downtown hum, as workers crowded the restaurants and took care of errands on their lunchbreaks. They – along with the hundreds of people employed by a cigar plant on the outskirts of town – also bought houses and rented properties here and supported locally owned pharmacies, barbers, hardware stores, grocery stores, and the hospital.

On what he called “Liberation Day,” President Trump announced a new tariff schedule. While the markets had been up in anticipation, they are down sharply, with the Dow dropping 2,200 points, perhaps surprised by the extent of them. Basically, Trump has laid tariffs equal to about half what other countries charge on US exports, inviting them to lower theirs in exchange for reciprocity. What the final result will be is anyone’s guess, for the Trump tariffs are chips in a high-stakes game of international poker. They have already had an effect. Canada has promised retaliatory tariffs while Israel has dropped all tariffs on US goods. A tariff is a tax laid on goods passing through a port.

So the big question is: will it work? Will Trump’s protectionist policies, announced with some fanfare at a Rose Garden event at the White House yesterday, increase American prosperity? Or will they harm the economy?  Opinion on that matter is sharply divided. In one corner we have the free traders. They are wringing their hands and warning about higher prices, disruption of international trade and a trade war no one can win.  In the other corner are – what to call them? Most are not “anti-free traders” or “economic protectionists” (though some are).  Let’s call them “fair traders.” They like the idea of free trade – in theory. What they don’t like is the ethic of “free trade for thee but not for me.

The classical defense of free trade, the one found in Econ 101 textbooks and Ricardo’s comparative advantage model, goes something like this: countries should specialize in what they can produce most efficiently, export the surplus and import the rest. Trade allows global output to increase, everyone gets richer and any government interference – like tariffs or subsidies – just gums up the works. But that’s not the world we live in. David Ricardo, the early 19th-century British economist who developed the theory of comparative advantage, illustrated it with a now-famous example: even though Portugal could produce both wine and cloth more efficiently than England, both countries would benefit if Portugal specialized in wine and England in cloth, then traded.

Britain and India have been trading for over 400 years. For 190 of those, between 1757 and 1947, the subcontinent was close to being a captive market of the United Kingdom. Today commercial turnover between the two nations is a mere £23 billion — a tenth of the goods and services traffic between Britain and the European Union. For many Leave voters, Boris Johnson included, expanding trade ties beyond the EU’s borders was a major motivation for Brexit. India was seen as both an exciting emerging market but also a nation that is culturally entwined with this one. However, five years after Britain voted to depart the lucrative single market, all Johnson and Narendra Modi have been able to conjure up is a below-expectation 'enhanced trade partnership'.