Protecting Free Trade

The "Protectionism" article on Wikipedia tells us a number of counter-intuitive things about Protection and Free Trade or Reciprocity. First, it notes the work of an economist named Irwin that asserts that it is a myth that America's industry grew and prospered due to high tariffs. America really grew he says because of her openness to people and ideas. In Sandburg's Lincoln, Abe points out that, by the 1830's, the UK had 170 million dollars invested in the US. Corn Laws, Hamiltonian tariffs and the fresh memory of two wars were not going to make the US any less an attractive place in which to invest for Britain.

Second, there are actually three reasons tariffs are imposed by a country: 1. to get revenue; for what is a "tariff" but a tax on trade? Second, protection. Third, to force other countries to arrive at reciprocity agreements to increase TRADE! Let's review that. 

First, the tariff today does not collect revenue. As Irwin's charts (a real eye opener for people who want to know about Protection history) show, the World as a whole gets not even 1% of GNP from tariffs. We get barely 1% of our federal revenue from them. Second, the tariffs, with one big exception are not protecting any one. Most of the industries our tariffs were supposed to protect either are miniscule parts of our economy now (e.g. shoes) or are gone. The exception is supply management but it is the reminder of the exception rather than the rule. The real barriers to trade are non-tariff like the ban on BGH or the Telecomms, Airline and Banking laws that give Canadian firms monopolies or "buy Canadian" policies and programs.

The third point is surely the paradox and the dilemma - sometimes maybe often you have to erect tariffs to induce potential trade partners to negotiate free trade agreements with you. This is exhibit A for the proposition that Donald Trump is the true free trader in using what appears to be on the surface a protectionist hammer. Trump makes it explicit like a Mafiosi selling protection to a shopkeeper (if the thuggish analogy pleases Trump haters so be it):"You do a deal with me, I will drop the tariffs" and usually starts dealing the moment the tariffs go up and takes them down when the deal is done. The Irwin charts show clearly that the US has been in trade deficit since 1970 with it often equalling 6% of her economy. There is no reason why the US should tolerate that if she can rectify the balance with better deals as was done with both the Chinese and USMCA deals. Yet, Wikipedia still manages to put in a few nasty shots at Trump as "trade neanderthal" anyways. 

This brings me to the other note - we're living in an era of free trade such as we have never known. Average Tariffs on Total Imports and Dutiable Imports are lower than they have ever been, especially since the coming of the Bretton Woods Agreements, the GATT/WTO and the various Trade "Rounds". This is especially true of the US but even more true of Europe. The average tariff was 20-60% from 1833 to 1945. It is now 5. The real threat to trade today is not only non-tariff barriers as mentioned above (of which Europe in particular has been an avid and hypocritical practitioner) but lopsided and unhelpful deals or non-deals that naturally enough create ill will in the countries on the wrong end of them and real damage to their economies. If you do not like Trump's trade policy know that it is the incompetent, ill-considered and insensitive fanatical devotion to free trade at any price of his predecessors that invented it. This gave Trump the constituency to take the presidency and implement a vision shared by many Americans who feel that free trade unvarnished and without looking out for the interests of the US has hollowed out their industries and denied good jobs to them.

Thus protection comes in many guises as does reciprocity and free trade. The course of history and the consensus among economists on free trade is encouraging as is the overwhelming evidence that it enriches consumers, grows economies and liberates business. However, several things must be kept in mind going forward so as to build on this critical  part of history's liberating Human Consensus:

1. Tariffs are no longer a serious revenue-collecting tool but a tool, if at all, for expanding reciprocity and freer and fairer trade. They protect no one except the specific interest it was supposed to protect but usually, if long term, leave that interest also poorer, less efficient and, sometimes, no more;

2. The two biggest enemies to free trade and reciprocity are non-tariff barriers to trade and elites who mistake their interests for the interests of their nations in this matter;

3. The Villains of trade (and we and they know who they are) must be blocked, prosecuted and ultimately punished so that they and others thinking of adopting their trade practices will be appropriately discouraged from such a course. It is true that, like in an arms race or a war, tit for tat usually just leads to worse races and wars. However, the good players should never be afraid to use the weapons given to them by the WTO to combat the baddies (I'll translate that to Chinese later).

We live in an unprecedented era of free trade and reciprocity across the globe. Paradoxically, we may have to use the tools of protection to ensure that this endures and thrives.

P.S.: BTW, check out the cartoon that heads up the "Protectionism" article in the Wikipedia. It's a delightfully metaphorical British Liberal Party Ad from 1906 that extolls free trade. That is almost certainly the great Tariff advocate, Joseph Chamberlain, as the forlorn Protection shopkeeper! I wish this ad was on the wall of the office of every legislator in the World.