Wiencek: U.S. Leadership, Prosperity Depends On Free Trade
by Jacob Wiencek
In all of history one of the great ironies ever to occur that when the founding father of Communism, Karl Marx set out to unite the workers of the world, he inadvertently established a socioeconomic system that led to nationalist protectionism while Adam Smith, the founding father of capitalism created the system which will unite the world, even though in his landmark book “The Wealth of Nations” he stated the following:
“By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.”
This election cycle has been a very unique one for a lot of reasons. One of the most salient factors and troubling ones at that is the now bipartisan rage at international trade.
Senator Bernie Sanders (I-VT) made a serious challenge to Hillary Clinton from the left by rallying his supporters against the incoming trade deals the Transatlantic Trade and Investment Partnership (TTIP) and its partner agreement, the Trans-Pacific Partnership (TPP) while the now Republican Presidential Nominee Donald Trump made much a similar argument on the right when bashing the effects of the North American Free Trade Agreement (NAFTA) and he too spoke out against the TTIP and the TPP.
What was once a long standing and one of the few remaining areas of bipartisan agreement has now turned into a bipartisan muck where both major party presidential nominees stand against future trade deals (though one suspects Clinton is just going through the motions) and populist factions on both left and right are mobilizing to capitalize on disfavor on trade deals.
Globalization is Capitalist
Make no mistake, this is a global problem as well. One of the major sticking points in the TPP negotiations was getting nations to remove their protectionist policies which hurt American business and trade.
Through many years of complex and careful negotiations the US was able to persuade numerous nations to limit and reform their state owned enterprises (which unfairly benefit from government support), and in a major win, the Administration was able to convince Japan to reform their notorious agricultural subsidies.
Folks this is a once in a generation achievement we are on the cusp of, but sadly many have turned against trade for opportunistic political reasons.
If the US fails to ratify and implement the TPP then Singapore and Japan have already warned they would pullout and forgo any economic reforms that could benefit American business while China eagerly waits in the wings to take advantage of the chaos in the Far East should America’s long standing commitments to area be called into question.
The situation is even more dire in Europe regarding the TPP. Recently the German Social Democrat and the French Socialist Party have both come out saying TTIP is dead, and while this is probably a bit of electioneering as both countries face the polls soon but still the worries remain that these sentiments will remain or are now further emboldened. Economic protectionist sentiment is running high in the EU states as well as in the US making any future deal now at least on hold until after the US general elections later this year.
From a domestic standpoint, there are two troubling aspects to the recent tirades against trade.
First, it isolates US global leadership. The US does more than military interventions and while the hard aspect of global power is important, so too are the soft aspects. US promotions of trade liberalization and open seas allows for every nation that chooses to be linked into a global economic system and it is through US support and leadership that the world as we now know it keeps functioning. Is it really any coincidence that the United Nations is headquartered in New York City while the World Bank Group and the International Monetary Fund are both headquartered in Washington, DC? For the IMF, the US retains the sole absolute veto power among the shareholder nations. Failure to ratify and implement the TPP and TTIP would severely damage US credibility worldwide and could lead to other nations being less willing to work with us.
Second, the most disturbing piece of this is that the Republican Party especially is being moved away from its traditional support of free market capitalism. Historically since the end of the Second World War, the Republican Party has been the main driver (both ideological and in practice) of free market economics. Certainly President’s Franklin Roosevelt and Harry Truman (both Democrats) did much to build the base for post-World War II trade liberalization, but the Republicans more often contributed and supported international economic liberalization more than their Democratic counterparts.
Now the GOP is embracing a kind of economic nationalism/protectionism that should give many pause. Not only is it usually the Democrats who have trouble getting their party to accept trade, but now the GOP is moving against free market economics altogether making it harder to keep promoting trade liberalization. Us conservatives should be very alarmed by that sentiment. But first and foremost we must understand how trade and globalization developed, before we make the case for deepening it today.
A Brief History of Globalization
Before the 1400’s there really was no such thing as international trade or globalization. Certainly one can point to linkages like the Silk Road of ancient times but that was as much a long trail of largely accidental local routes as much as it was one of global trade. Certainly one can follow the armies and empires that moved around but again those were temporary and highly localized. Even the Crusades only reinforced and accelerated regional trade linkages at best in the Mediterranean Sea area.
No, the first spate of true global connectivity didn’t occur until two events in the mid to late 1400’s. First off the Portuguese, a nation of excellent mariners opened up trade routes to Asia bypassing the Middle East by going around the heretofore unexplored African Cape of Good Hope. Specifically, the voyage of Vasco da Gama opened up a whole new world constant contact with foreign peoples that was entirely new in the human experience. This was followed in 1492 by famed voyage of Christopher Columbus who opened up sustained contact and relations with the New World that forever changed the course of the world as well.
The desire for trade and business is what opened up these new routes and what spawned the precursor to modern capitalism as we know it: mercantilism. Despite the feudal aspect of early colonization conducted by Spain and Portugal, the most successful colonial empires were the British, French, and Dutch. Each three of these empires embraced to varying extents the developments of mercantilism and allowed each system to grow into a modern capitalist system. Some of the most successful colonizers were in fact a new form of business: the private corporation. The Dutch and British East India Companies soon began carving out large slices of world to trade with and develop for profit.
It was this successful mix of trade promotion, and development of capitalist institutions that linked the world together as we see in our history.
Now one of the most constant criticisms I have encountered among people, especially those who lived through the Cold War (full disclosure, I was born 5 years after it had ended) is that globalization really means centrally planned global communism and the only way to preserve our free market is to reduce globalization and engage in forms of protectionism.
It is quite easy to see why this could be a well-founded concern. When Karl Marx wrote the Communist Manifesto in 1848 he called for the workers of the world to unite and establish a worldwide dictatorship of the proletariat. Through the latter half of the 19th and for most of the 20th centuries, many left wing organizations were formed and attempted to establish that form of global communism starting with the various communist internationals and finally culminating in the Union of Soviet Socialist Republics and later both the Warsaw Pact and COMECON.
However, setting aside the historical record which shows any attempt at global communism to be a failure, there are two really main and closely interrelated arguments against why communism (which is largely a dead ideology anyways) will not ever be able to reach that point.
Firstly, we can now clearly observe from the wreckage of the collapse of communism in the late 1980’s that central planning simply does not work. Not long after the USSR fell, India and numerous countries around the world began giving up in part central planning and controlling economic outcomes. This raises the question that if on a national scale one cannot feasibly engage in sustainable economic central planning, then how can one even begin to attempt global central planning? There are such an array of factors and daily, minute social and economic interactions that produce what we have now that it would be impossible to even try and manage and control that.
Second, and in a closely related point, is that even though central planning is largely a dud, in order to have any chance of even being moderately successful, a communist central planning authority must have absolute power over economic interactions, which means that one cannot have international trade and globalization because such interactions cannot be managed since they outside the authority.
Now since communism and socialism have been only tried on the national level (COMECON being a largely for show organization) we now have what I would call national socialism. One of the constant rallying points for most socialists these days is the fact that they seek to improve the national standing by making international contact harder.
Go back to the earlier mention where the Social Democrats in Germany and the Socialists in France are against TTIP. TTIP in theory could very well be used as a vehicle for achieving a kind of global socialism/communism that these left wing parties would be expected to promote. They aren’t because they know that if they are to enact socialism, it can only be controlled at the national level, if that, and that subjecting their nations to outside economic competition from the capitalist nations around the world, their systems would be immediately swamped by competition.
As discussed earlier, globalization was kicked off by the unique mix of trade promotions by the early European powers which was then fueled by early capitalist developments in corporations (which allowed the shareholders to raise capital), banking, property rights, and rule of law. Certainly communism/socialism has tried to make its worldwide system a reality, but it will never happen as the byproduct of this is extreme economic nationalism which prevents any meaningful international cooperation on this front.
Globalization is Beneficial
Since the end of World War II, the world has seen unprecedented advancements in the quality of life and economic development everywhere. Billions lifted from poverty, dynamic advancements in the fields of communications and information technology creating a more prosperous world.
Arthur Brooks, president of the conservative American Enterprise Institute (AEI) and author of the amazing book “The Conservative Heart” has spoken at length about the fall of global poverty and international economic development. His TedTalk makes the case that economic globalization has lifted billions out of poverty thanks to advancements in trade liberalization and global property rights (not to mention his political message is also very positive and should be heard).
Brooks is but the latest to note that globalization has led to the spread of capitalism that has led to global benefits. China is perhaps the most dramatic example of this.
Until 1977 when Chairman Mao died, China was traumatized by ridiculous and grand projects at building socialism in the country. Tens of millions died in the Anti-Rightist campaigns of the 1950’s, and then the twin horrors of the Great Leap Forward and the Cultural Revolution. Chinese industry and development was decimated and tens of millions died and were starved all in the name of achieving communism (and probably in the name of eliminating Mao’s enemies too who tried to stop this madness).
However all of this changed in 1978 when Mao’s on again off again ally/opponent Deng Xiaoping put an end to the Maoist madness and put China on the road to economic development. State owned enterprises were dismantled, special economic zones created, and moves towards limited property rights, trade liberalization, and private sector entrepreneurship made. The results have been no less astounding. For 30 plus years, on what have admittedly been modest economic reforms, China has reaped one of the biggest net reductions in poverty ever, creating the world’s largest middle class. Communism didn’t do this and certainly no half-hearted attempt at global communism did either. No it was globalization and global capitalism that led to this.
Perhaps the best way to convince Americans of the benefits from global trade is by going straight to the heart of the issue: NAFTA.
This maligned agreement created the largest free trade area in the world, and it has been demonized ever since. When one takes an objective look at the facts, we can see it has clearly benefited the North American economy, the North American worker, and broad segments of the economy.
First we must deal with the misconceptions told by others first and foremost. During the 2016 presidential election cycle, both Republican Presidential nominee Donald Trump and former Democratic Presidential Candidate and incumbent Senator Bernie Sanders (I-VT) have called for various re-negotiations and leaving of NAFTA.
This would be a colossal mistake for nearly endless reasons. The Office of the US Trade Representative maintains an excellent repository of information regarding NAFTA and how it has benefited the North American economy. It isn’t only US Government sources that advocate trade; numerous private think tanks do as well, and conservative ones at that. The conservative AEI is a strong supporter of globalization with a recent post stating the following:
“Take a look at the benefits that America reaps due to its position in the “globalized” economic realm. Those opposed to globalization point out that free trade policies have contributed to a redistribution of the manufacturing base, but the pains caused by free trade to Americans have largely leveled off. With the rise in wages in the much of the developing world and the costs associated with transporting goods across oceans, outsourcing simply isn’t as attractive as it once was, and America’s manufacturing sector is actually growing in many states.”
The conservative Heritage Foundation too has been a longtime supporter of free trade and economic globalization with a recent and short piece on their Daily Signal blog detailing the benefits to the US from NAFTA.
But there is more to economic globalization than NAFTA, and the US has benefited immensely from all of it. Again from the conservative Heritage Foundation:
“International automakers have invested $73 billion in U.S.-based design, research, development, manufacturing, finance, and other operations. Their 36 manufacturing facilities operating in the United States produced nearly 5.4 million vehicles in 2015. It is also worth acknowledging the fact that 126,500 Americans were directly employed by these companies.
Domestic automobile brands, like the “Big Three,” benefit from foreign investment too. For example, Chrysler, a Michigan-based company, is now known as Fiat Chrysler Automobiles, since Italy’s Fiat became its main investor. The same argument is valid in the opposite direction. The popular Ford Fusion is assembled in Mexico, and the Chevrolet Impala is assembled in Canada.”
Moving Trade Liberalization Forward
The challenge we now face is moving globalization and international trade forward.
We face a rising tide of populist sentiment against global leadership, and specifically international trade. As conservatives, we have traditionally stood up for free markets and now that proud legacy is in danger. We have been led by the siren song of Trump and his failed economic protectionist ideas (and boy are they failed ideas) but few of us have taken a stand against such reactionary thinking. Not only are these bad economic decisions going to hurt all Americans, but they will endanger the future development of global trade and of US global leadership.
Failure to ratify and approve the TPP would call into question our commitment to the Asia-Pacific and allow China to move in and dictate the future rules of trade, not exactly the best of results while US-EU failure on the TTIP would remove another global standard for trade liberalization and make developing nations question how committed the West is to economic liberalization.
There is much and more at stake here. The world is watching us and no longer can we hide behind our two oceans (as if we ever could) and wait for the world to engulf us in its affairs. We must stand be ready to lead. American leadership and support for trade liberalization led to global norms which have successfully led nations to change from their economic nationalist policies and allowed their people to seek better lives.
Crucially, liberal trade policies benefit Americans on all socioeconomic levels. If we stop now, if we endorse and let the rising tide of economic nationalism roll back the gains of the past 70 years then the world we wind up with will be less prosperous, and less free than we like, and the US will be more isolated with little room to maneuver.
We must pass and support TPP, TTIP, and future trade liberalization agreements. It would hurt far more to stop our support than continue it.
Jacob Wiencek is a Petty Officer Third Class in the United States Navy and current resident of Virginia. The views expressed above are his own and do not reflect the official views and are not endorsed by the United States Navy, the Department of the Navy, the Department of Defense, or any other body of the United States Government.
