In this last edition of our series on libertarianism and trade policy, we’ll look at practical and philosophical proposals for how to fix the problems caused by free trade. The bottom line is that our economic woes will not be resolved while we are enduring politics as usual. A multicultural democracy doesn’t have a coherent sense of identity, and economic nationalism is impossible without social nationalism. It shouldn’t surprise anyone that the United States is pursuing free trade policies. American democracy is predicated upon the idea that every creature which walks on two legs and happens to live within certain latitudes and longitudes has the right to vote. Is there any wonder why our country embraces internationalism? In our current situation, it is impossible for anyone to run for federal office without the massive support of financial elites. These elites are thoroughly committed to globalism and the continued deconstruction of the American identity. Consequently, the problems caused by free trade will not be reversed under this current regime, for it is not in the interest of the current elites who control policy.
Nevertheless it is important for us to understand what kind of commercial and industrial policies we should embrace when circumstances more favorable to our cause present themselves. When white Christians have an opportunity to form our own ethnostate, it will be necessary for us to formulate a competent commercial and industrial policy. To this end we will look at proposals by Ian Fletcher for how to right America’s sinking ship. Before delving into the particulars of Fletcher’s policy suggestions, I’d like to outline key principles that I believe are necessary for a healthy approach to economic issues.
Economic Policy Must Reflect Healthy Human Relationships
What is often missing from debates over economic policies is how these policies impact the lives of real people and their communities. Economic policies based upon an individualism which disregards familial and ethnic solidarity are bound to fail, just as economic policies like Marxism which are based upon a fictional international proletariat are bound to fail. Sound economics is derived from a healthy view of society. Healthy societies are comprised of strong families with a firm sense of their ethnic identity, and their economic activity reflects this. Libertarian economists and theorists commonly misrepresent history as a success story for individualism apart from traditional loyalties, especially ethnic and racial loyalties. The reality is that the economy must be made for the people, not the people for the economy. This is the only way to develop a truly humane economy.
Libertarians such as Gary North believe that nations and national boundaries are irrelevant for the purposes of trade and commerce. He calls the nation nothing more than an artificial “invisible line,” a purely arbitrary human construct. See these “clichés of protectionism” which North formulates:
The nation has the obligation to protect its people against [terrifyingly efficient] slave laborers.
The nation has the obligation to protect its producers against export subsidies, just like the ones our government provides, by foreign nations.
The nation has the obligation to defend itself against goods produced in nations that do not have higher environmental standards than ours are.
The nation has the obligation to defend itself against economic warfare by other states.
The nation [not the military] has the obligation to protect industries that might be needed in a war against an exporting nation.
His primary objection to these “clichés” comes in the form of a question: “What do you mean, ‘the nation’? What is this nation?”1
While national borders are in part due to human political activity, the Bible teaches that they are indeed integral to human society, being ordained by God for our own blessing and good. God divided humanity into nations as a means of taking dominion (Deuteronomy 32:8-9). Forsaking our own people and inheritance in favor of some abstract global economy based upon the will of consumers is infidelity to the Scripture.
A healthy economy is impossible without a moral society. Good workers don’t fall from the sky, but are raised to work hard in traditional, intact families. Many economists try to sever economic activity and health from the concept of a healthy society. Wilhelm Röpke did a superb job in demonstrating that, while the market is essential to the economy in regulating prices based upon the scarcity of goods, it isn’t the sole precondition for a healthy economy or society. The market might well lead consumers into activities that are unhealthy in the long term, such as the preference for short-term economic efficiency over long-term prosperity: what Ian Fletcher calls “perverse efficiency.” Hence Röpke argued for economic policies which protect the natural family and local family-run businesses over large multinational corporations.
Free trade proponents fail to account for how free trade actually works in the real world. As Fletcher observes, free trade proponents base their ideas on what they believe must happen, but don’t particularly focus on what does happen under free trade policies. The reason that free trade fails is because it neglects to see how the world actually works in practice. Libertarians often imagine a world in which people are primarily identified as consumers seeking out their own economic benefit without any “coerced” associations with their family, community, or nation. The reality is that family and tribal identity are very important to the ways in which people conduct their lives and make economic decisions. When the family breaks down, society will break down and drag the economy along with it. Economic theory which ignores the very house2 it is meant to nourish is bound to fail.
Workers and Consumers Are the Same People Performing Different, Vitally Important Activities
Libertarian economists often promote free trade because of its supposed benefits for consumers. Gary North dismisses the protectionist assertions to the contrary, asking, “Why is it that the interests of this collective entity known as the nation are best understood by a group of politicians who have the support of a small minority of manufacturers who are in direct competition with manufacturers outside the country? We are not talking about most manufacturers. As recently as 1970, only about 5% of the United States gross domestic product was a result of international trade. Today, it is closer to 25%, but any way that you define it, the vast majority of Americans do not work for companies that are in direct competition with foreign manufacturers.”3
Does trade theory and policy impact only a small percentage of businesses that are involved in direct international competition? That is the contention of libertarian free trader Gary North. North scoffs at the idea that the nation involves mutual self-interest or that free trade policies have a significant enough impact to affect the status of most workers. The reason that free trade policies matter to workers in non-traded industries is because national economies are driven by internationally traded industries. Fletcher remarks that American barbers aren’t paid more because they are more efficient than barbers who work in less prosperous countries; they make more because wages are driven up by the historic success that America has enjoyed in manufacturing exports. This doesn’t mean that the wages of people who work in internationally traded industries will be higher than the wages for people who work in domestic industries. The wages for both will be comparable based upon skill set, but the wages will be determined by the success of internationally traded businesses influencing the nation as a whole.
Ian Fletcher explains:
[A]ll Americans, not just those working in these [internationally traded] industries, have a stake in their health. Many Americans, especially those working in the 70 percent of our GDP that is in nontraded industries, are indifferent to the problems of our tradable sector because they think these problems will never affect them.4 Directly, as previously noted, indeed they won’t. But indirectly, they eventually will, as our wages are propped up, at the end of the day, by our ability to go work elsewhere if better money is offered. And this basically requires a strong export sector if we have free trade.”5
Healthy economic policies must recognize that consumers and workers are the same people. If a community loses jobs due to outsourcing or foreign sweatshop labor, then the availability of slightly cheaper goods won’t make up for the unemployment or underemployment of many people in that community. This problem isn’t limited to laborers who work in direct competition with foreign manufacturers, either. Once these workers have lost their jobs, they will seek employment elsewhere and saturate the labor market, driving wages downward. Since many workers in these industries cannot move easily into another job, their lost wages will result in less money circulating in the local economy, and even those who eventually profit from cheap labor in the short term will fail in the long term; the middle class will evaporate, and the remaining poor laborers will not be able to afford goods or services the way they once were. While North tries to justify absolute free trade based upon its (transient and short-term) benefit to consumers, he fails to understand that consumers and workers are the same people, and in the long term unemployment will trump cheap imports.
Revising Ricardo’s Theory of Free Trade Based Upon Comparative Advantage
Fletcher goes into detail on modern revisions of Ricardo’s economic theory of trade based upon comparative advantage. As mentioned before, David Ricardo believed that free trade was to the advantage of all nations because it allowed different nations to pursue their own comparative advantage. This concept isn’t entirely flawed, but if Ricardo’s economics are over-generalized, they provide no correctives for the dubious assumptions which Fletcher has outlined. Fletcher commends the work of Ralph Gomory and William Baumol, which takes into account complexities such as economies of scale in trade theory. Gomory and Baumol indeed account for comparative advantage in their economic theory, but they don’t assume, as Ricardo did, that it is always within a nation’s best interest to follow their current comparative advantage or that that the free market will always steer a nation’s economy in the right direction. Gomory and Baumol aim to describe the balance between Ricardo’s concept of opportunity cost and the profits reaped from a quasi-monopoly status derived from economies of scale. To illustrate this concept of cost/benefit analysis, Fletcher uses the example of America capturing the watch industry from Switzerland:
Would America be better off if we produced for ourselves the fine watches we currently import from Switzerland? Maybe, because this would mean hosting a sophisticated, high-paying industry. But maybe not, if we turned out to be a grossly inferior producer and the extra wages and profits were outweighed by the cost of ending up with inferior and more expensive watches.
Ricardo understood the Ricardian cost side of this perfectly, but not the monopoly profits side. In his world, there are no monopoly profits because all industries operate under perfect competition all the time—and without scale economies and lockout, it is basically impossible to have an international monopoly or quasi-monopoly.6
Ricardo’s belief in perfect competition ultimately led him to his over-generalizations about the supposed benefits of free trade. Because Ricardo believed that business competition wouldn’t allow for monopolies to arise, he believed that nations would and should pursue industries in which they have a comparative advantage. But perfect competition doesn’t exist, for there can be a real advantage to monopoly profits created by having a domestic corner on a particularly lucrative market. There is a point at which the cost involved in creating this advantage for domestic businesses (through tariffs, subsidies, etc.) overcomes the benefit of such profits. At some point it would be better to trade with nations that are more efficient in a particular industry, provided that the host nation does not forfeit its advantage in all major industries. Fletcher calls this being greedy, but not too greedy.
Fletcher also points out that there are several problems with a nation attempting to capture every retainable industry. Since most nations have limited capital and resources, there is a very real need to allocate these resources wisely. The more resources that are allocated across multiple industries, the greater the chance is that they will be spread too thin. As resources become spread too thin, scale economies begin to work less in this nation’s favor as other nations will be able to allocate greater resources to industries in which they have a comparative advantage. The example that Fletcher uses to illustrate this point is the country of Finland. Finland has established a position atop the global industry in cellular phones, but Finland is probably too small to support the same advantage in other high tech industries such as avionics, nanotechnology, or fiber optics.
Fletcher points out a final problem with a nation capturing every retainable industry. This would mean that another nation would be deprived of high-value, retainable industries that would produce valuable exports in exchange for importing from other nations. Productive trade requires the existence of a profitable working class in both trade partners. If the result of trade is that the middle class wages of one country (the contemporary United States) are undermined by competition with slave labor of another country (China), then this trade will only harm both countries in the long term by allowing Chinese investors to ignore growing their own domestic economy through a profitable middle class and undermining the middle class in America that Chinese manufacturers depend upon to turn a profit. Good trade is between two nations with comparable economies, cultures, and values that possess a burgeoning middle class. This allows these nations to benefit from the advantages in comparative advantages that they enjoy without harming their own domestic productivity. Fletcher uses the example of an extremely talented jack-of-all-trades who is able to monopolize the best jobs in an isolated small town. He should pick an occupation that a) he is good at, b) doesn’t spread himself too thin, and c) doesn’t lock all others out of good jobs. Fletcher concludes, “Clearly, the old Ricardian logic has its place in a Gomory-Baumol world. It just isn’t the whole story anymore. The successful pursuit of economic self-interest, for both nations and people, is a tradeoff between simply grabbing what one wants and submitting to various demands of efficiency.”7
The final problem is that capturing every retainable industry will mean depriving B of retainable industries of its own. As a result, B won’t have enough high-value exports to afford very many imports from A, which would have enabled A to increase its exports from its own best industries even more. So A has to balance its monopoly profits against a trading loss as well.
Implement a Natural Strategic Tariff
Fletcher advocates a natural strategic tariff as a solution to the problems posed by free trade. Fletcher defines this as a 30 percent tax on all imported goods and services. One of the objections against a tariff on foreign imports is that it would not only protect valuable industries but also recapture industries that require semi-skilled labor like the manufacture of t-shirts. Fletcher explains that a 30 percent tariff would not cause this to happen, since third-world countries have a comparative advantage in these industries too high to be overcome by a 30 percent tariff. On the other hand, a 30 percent tariff would be sufficient to give American manufacturers enough of an advantage to recapture highly valuable industries such as the manufacture of computers, semi-conductors, and high-tech machinery. The key is having a tariff that is high enough to be effective, but not too high.8
Japan very clearly saw that its future depended not upon maximizing its efforts at tuna fishing, but upon investing for its future by intentionally building up industries that it didn’t have an advantage in during the past decades. While Japan’s comparative advantage was in tuna in the 1960s and the 1970s, today Japan is a highly developed economy that has overtaken America in the production of automobiles and other high-technology products. Japanese historian Kozo Yamamura describes the benefits of protectionism in bringing about the modern economic success of Japan:
Protection from foreign competition was probably the most important incentive to domestic development that the Japanese government provided. The stronger the home market cushion . . . the smaller the risk and the more likely the Japanese competitor was to increase capacity boldly in anticipation of demand growth. This can give the firm a strategic as well as a cost advantage over a foreign competitor operating in a different environment who must be more cautious.9
If Japan was able to successfully maneuver itself into a competitive position in trade through protectionist policies and by eschewing the received wisdom of free trade policies, why wouldn’t such policies work in contemporary Western societies? This is especially true when we have already seen that these same policies are what propelled European nations into prosperity in the first place. Only by embracing the over-generalizations of free trade policy have European countries declined, and it is only by embracing nationalist economic policies that we can recover.
Protectionism and National Prosperity as a Solution to Poverty
After analyzing the history of trade policy and deconstructing the over-generalizations of free trade theory, it is apparent that protectionism is a superior policy to free trade. Nevertheless some object to protectionism on the grounds that it harms the poor of third-world countries as they are unable to sell exports in first-world economies employing tariffs to insulate themselves from foreign competition. Many members of the hierarchy of the Roman Catholic Church have been arguing for some time that protectionist policies have worsened the poverty of third-world countries.
In response I would point out that protectionism actually helps promote economic prosperity and eliminate poverty, free trade often being responsible for maintaining poverty in poor nations. The merchant class in countries such as China and India are able to benefit from the free trade policies of countries like the United States without having to worry about developing their own domestic economies which would support a domestic middle class. China and India maintain policies which force most of their workers into slave labor conditions so that products can be manufactured less expensively than in the United States. This allows these countries to offer lower prices for their exported goods than what American companies can possibly offer. As a result American companies have to choose between losing in competition to foreigners or taking advantage of the cheap labor that exists in other countries. The result is that workers in the third world are kept in poverty, for they don’t need to be major consumers for the tiny merchant class in countries like China or India to succeed. American workers are also pushed into poverty as they lose their jobs or wages in competition with foreign slave laborers or illegal immigrants who drive the cost of labor down.10
Protectionist policies help guard the wages of workers from being diluted by competition with foreign countries who exploit slave labor to benefit a small merchant class. If countries such as the United States would commit to protecting their workers’ standard of living, then this would force countries like China and India to take steps towards improving the lot of the poor masses that today work in abysmal conditions for pennies a day. The economic nationalist isn’t using national self-interest to make other nations poor; instead he is simply looking after the welfare of his own people in the same way that a father looks after the welfare of his family. The result of economic nationalism would be a world in which nations would have healthy national economies and could engage in responsible trade that would be mutually beneficial. This would help eliminate poverty and facilitate upward social mobility across the world.
Conclusions on Economic Nationalism vs. Free Trade
I began my studies of economic nationalism because I wanted to understand why the world is in such poor economic shape today. My suspicions about the wonders of free trade were aroused because free trade theory holds a place of almost complete acceptance in the West at a time when the West has been experiencing significant economic, cultural, and spiritual decline for at least a century. I found that Ian Fletcher’s book, Free Trade Doesn’t Work, contained the answers I was seeking. Fletcher does an excellent job demonstrating why David Ricardo’s theory of free trade based upon comparative advantage is oversimplified and rooted in several dubious assumptions.
As a committed nationalist who desires to the see the formation and prosperous existence of a white Christian nation, I am naturally interested in policies which will aid such a venture. To this end I would state that it is important not to be overly committed to a particular policy or ideology to the extent that it harms our people in its application. Free trade is based upon the premise that trade between individuals and nations is mutually beneficial. It seems that many libertarians and free trade proponents are so concerned with arguing for freedom in the abstract that they fail to account for how absolute commercial freedom has devastated the countries that have followed their advice. It is true that trade and commerce are inherently good; the only caveat a protectionist would add is that trade should not be allowed to bankrupt a nation’s resources through outsourcing or cheap imported goods or labor. Not surprisingly, the Bible comes down on the side of what German economist Friedrich List called the “national economy,” as opposed to individualism. This is especially evident in Deuteronomy 23:19-20, when God tells the Israelites that they may not lend on usury (interest) to fellow Israelites, but that they may lend on usury to foreigners so that they may possess the land that God had given them. When nations abandon their own welfare as a group and instead focus on the best interests of a small group of wealthy merchants, they soon discover that the whole nation suffers as a result. Today, countries who practice free trade such as America are discovering that we are having to rapidly sell off assets to cover our trade deficit.
I found Ian Fletcher to be very informative, but that doesn’t mean I had no disagreements with his position. In particular, Fletcher considers agriculture to be a weak industry since agriculture does not typically generate valuable technological advancement in the same way that other high-technology industries typically do. My response would be that agriculture is intrinsically valuable because the working of the land is necessary for food, and because tending the earth is a mandate God has given man from the beginning. While I do believe that Fletcher does an excellent job addressing the question of trade policy, there are several problems with Western societies that manifest themselves in the economy. One is the practice of usury or lending on interest. Another is the problems with sound currency, since the government often steals value from citizens by debasing the currency. These problems need to be addressed, along with the issue of trade policy, if a sound economy is to be restored.
Finally, I would say that Fletcher’s sound trade policies can only be implemented in a traditional, ethnically homogeneous nation, not an ethnically mixed empire. America pursues destructive economic policies because she has pursued destructive social policies. There is no way that America can fix her problems in the current political milieu. Fletcher expresses hope that the prevailing free trade coalition which has dominated American politics for the past several decades is finally collapsing. While trade policies have been criticized by some Democrats and Republicans, it is doubtful that any of them are going to make any substantial difference in the way that business is done. Most of these politicians have offered only token resistance to the current trends and support positions that are equally destructive (if not more so) like amnesty for illegal immigrants. Even if a politician genuinely wanted to fix the problem, the system is entirely stacked against him. In a mass democracy in which corporate interests, banks, and tax-supported political organizations can easily manipulate the electorate, only politicians willing to play the game of group-think can hope to win an election. Because these corporate interests and banks are the winners in the free trade, they will only endorse politicians who are willing to support free trade policies. The solution can only come from the replacing of the prevailing of the current system with ethnically-conscious nationalism. Like all of our social and political problems in the West, this one isn’t going to be voted away.
- See Gary North, “The Statist Propositions of Protectionism.” Note also how North casually dismisses foreign slave laborers as simply being “terrifyingly efficient.” It shouldn’t require much refutation other than to point out that Chinese sweat shops essentially are slave labor camps, and American workers have every reason to want to protect their wages from competition with foreign slave labor. If they are going to sinfully cheat (and harm men) in order to lower their prices, we do not want to compete with them. ↩
- The word economy is derived from the Greek oikonomos, meaning ruler or manager or law (nomos) of the house (oikos). ↩
- Gary North, “The Statist Propositions of Protectionism” ↩
- Stephen Tokarick, “Quantifying the Impact of Trade on Wages: the Role of Nontraded Goods,” International Monetary Fund, 2002, p. 14. The percentage of the economy that is internationally traded has gone up from 25 percent to about 30 percent since North wrote his article on free trade. ↩
- Ian Fletcher, Free Trade Doesn’t Work, p. 118. Fletcher further notes, “This phenomenon is familiar domestically, too. The high-wage auto industry famously propped up wages in the industrial Midwest for decades during its heyday.” Ian Fletcher, Free Trade Doesn’t Work, p. 284, endnote 393. ↩
- Ian Fletcher, Free Trade Doesn’t Work, p. 220 ↩
- Ian Fletcher, Free Trade Doesn’t Work, p. 220 ↩
- See Ian Fletcher, Free Trade Doesn’t Work, p. 233 for further discussion. ↩
- Kozo Yamamura, “Caveat Emptor: the Industrial Policy of Japan” in Paul Krugman, ed., Strategic Trade Policy and the New International Economics (Cambridge, MA: MIT Press, 1987), p. 177 ↩
- Fortunately, there are Roman Catholics at the Distributist Review who understand the detriments of free trade and the benefits of protectionism. ↩