Cost of US 'free' trade: collapse of two centuries of broadly shared prosperity

Part of the problem is that today’s free-trade order is in reality a curious mixture of genuinely free trade practiced by the United States and a few others with the technocratic mercantilism of surging East Asia and Germanic-Scandinavian Europe.

It wasn’t always like this.

A history of protection

From 1790 to 1945, America grew and prospered in a largely protected economic environment. Our trade then was not “free.” But after World War II, we wandered away from Alexander Hamilton’s vision of a relatively self-contained American economy in order to win the cold war. We threw our markets open to the world as a bribe not to go communist. If we fail to return to a policy of strategic, not unconditional, economic openness, we may lose the next cold war – to a Confucian authoritarianism no less opposed to the idea of a free society than Marxism, and considerably more efficient.

There is an appropriate policy response. For starters, the US should apply compensatory tariffs against imports subsidized by currency manipulation, an idea that originated with Kevin Kearns of the US Business and Industry Council and was recently passed by the House of Representatives. Also essential is a border tax to counter foreign export rebates implemented by means of foreign value-added taxes.

The fundamental reality of free trade is that it relieves corporate America from any substantial tie to the economic well-being of ordinary Americans. If corporate America can produce its products anywhere, and sell them anywhere, then it has no incentive to care about the capacity of Americans to produce or consume. Conversely, if it is tied to making a profit by selling goods made by Americans to Americans, then it has a natural incentive to care about American productivity and consumption.

Productivity and consumption are prosperity. The rest is details.

Ian Fletcher is senior economist at the Coalition for a Prosperous America, and the author of "Free Trade Doesn't Work."

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