There is no such thing as free trade.

Trump’s steel tariffs are sending the world’s bow-tie brigade into total meltdown. Free trade is their Gospel and anything that challenges it is literally worse than Hitler. The globalists have been ramming free trade down our throats for the past 30 years. The outcome has been a near total destruction of manufacturing bases in countries like Australia and the US. We were told that this was good for us and that new jobs would be created in the “smart industry” or whatever it was that they were calling it. Those jobs largely failed to materialise, unless you counts hordes of public servants.

Free trade was a giant con that gave immense profits to large companies who could outsource labor costs to cheaper foreign nationals, as well as removing manufacturing bases to countries in Asia. It has helped to seriously destabilize the working class who have seen their jobs disappear and their towns slowly die.

But in the minds of economists all of this is okay because there is nothing more practical than good theory.

It is well worth emphasising that arguments against free trade are always conspiracy theories. Evil foreigners are doing bad things to us.

In the minds of economists who only deal in the world of the theoretical, free trade means exactly that. All the people of the world are pure and only have our best interests close to their hearts. The reality is far different. Trade is war by other means, and governments which have not been usurped by outside interests will do their best to give their nations as big an advantage as possible.

But at the same time evil foreigners are doing bad things to us. People were shitting their pants just a few months ago about Little Fat Kim and his nukes, but now he’s suddenly come to the negotiating table and wants to give them up. How the hell did that happen?

China. Trump is using economic leverage on China in order to get them to act on North Korea. China enables North Korea – without them little Fats is screwed. So Trump is going after China and the only way to make them listen is economics. In case you haven’t noticed it’s called the art of the deal. The US military is there to back up the economic leverage. China respects this play, unlike the US foreign policy of the last 30 years.

Trump’s tariffs are not just about protecting people’s jobs; they are a strategic push to force diplomatic change without resorting to the use of military force. The point is that in the minds of those that push the free trade line, free trade is linear, it isn’t even binary. The only thing that matters is free trade and anything that gets in the way of this is horrible and evil. It is an infantile way of approaching the complexities of the world in which we live.

The only interests that all Australians have in common, and with the government, is the maintenance of law and order, and national security.

Economics, trade and national security are intrinsically linked. Trade does not exist in a bubble and neither does economics.

Now I understand that often good economics doesn’t appear to be good politics. Yet good politicians always make good economics work for them.

Which is exactly what Trump is doing but economists such as this are completely blinkered and unable to see it. The irony in that statement is incredible to behold.

But what about the fact that tariffs and protectionism might cause items that we want to buy to be more expensive? After all, this is the great bogey monster that gets wheeled out all the time whenever there is a serious objection to free trade. First of all, if you’ve lost your job due to the knock-on effects of free trade then you won’t be in a position to buy anything at all, regardless of the price.

But at its heart, this attempt to scare people is also a big lie. There is no evidence that tariffs cause prices to rise. Prices are set to maximise profit. If the costs of exporting a good to a country increase then that means the profit will decrease. It doesn’t automatically mean that prices will rise. Companies need to sell their goods at market in competition with other companies. If their costs of bringing their goods to market are higher it simply means that their margins will be less.

The ironic thing is that Australia is full of tariffs. Take wine as an example. The Australian wine industry has been protected by high import and customs duties on foreign wine imports for decades. Without those protections there wouldn’t be a wine industry in Australia.

The term free trade is in of itself entirely theoretical. In real life it just doesn’t exist. It is a giant con of the ages, much like global warming and the so-called benefits of immigration. And now finally it is slowly being revealed for the great deceit that it always was.

11 thoughts on “There is no such thing as free trade.

  1. Felipe Grey

    “There is no evidence that tariffs cause prices to rise. Prices are set to maximise profit. If the costs of exporting a good to a country increase then that means the profit will decrease. It doesn’t automatically mean that prices will rise. Companies need to sell their goods at market in competition with other companies. If their costs of bringing their goods to market are higher it simply means that their margins will be less.”

    I agree that there are ‘externalities’ associated with free trade and the export of jobs. However, isn’t it a fact that import tariffs increase the cost of goods in the importing country not by increasing the cost to the exporter, but by adding in effect an ‘import tax’ to the goods on import? Thus the importing country’s citizens pay the tariff cost imposed by their own Government, but this has no impact of the production cost of the exporters.

    Sure, the imported goods do become more expensive in the importing country, so fewer imported goods may be purchased compared to locally produced equivalents. It may be that over time, the exporters may try to reduce their production costs to compensate for the tariffs imposed and bring the resulting import prices down, but in the short term that is unlikely, unless the exporters were indeed selling way above normal cost+profit prices before the import tariffs were imposed, in which case import tariffs would be needed to negate predatory pricing (also known as comparative advantage)..

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  2. MarkT

    It’s somewhat bewildering to me that you can be so right and reality-oriented on many matters, but so ignorant in others. On other topics you seem to have some understanding of the benefits of capitalism, but when it comes to trade across borders you seem to regress to the blighted mentality of a socialist. The erratic rantings of a socialist is exactly how this piece reads to me. If you want to understand economics you need to go right back to basics, and ready something like Hazlitt’s ‘Economics in One Lesson’.

    I won’t attempt to unpick all the confusions here, except to highlight the biggest strawman: the case for free trade does not rely on believing “All the people of the world are pure and only have our best interests close to their hearts”. To the contrary, it relies on the understanding that both parties in a trade have their own interests at heart, and a free trade only takes place when both parties make their own assessment they will each benefit from the trade. If you go down to the shop and buy a bottle of milk for $3, that means you value the value the milk more than the $3, and the shop owner values the $3 more than the milk. The transaction is a win-win for both parties. This basic reality doesn’t change just because the trade occurs across borders.

    It makes no sense for a country to protect industries with tariffs, because all that does is re-direct that nations resources to producing things it’s less efficient at, at the expense of things it’s more efficient at. It translates what would be a win-win into a lose-lose for both parties. To the extent Trump is serious about this, is the extent to which it will counter the benefits of the deregulation and tax cuts he has implemented.

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  3. Andy in FL

    MarkT,

    The problem is in ensuring free market principles are maintained in “free trade” agreements between countries of vastly different types of governments, different cultures, and different morals. For example, the Japanese illegally, and with the assistance of their government, reduced the price of their electronic goods, usually initially operating at losses, until they owned the market and put American electronic manufacturing companies out of business. This was all done in the name of free trade and Austrian economical principles, except it wasn’t any of that. It was corruption by companies conniving with their government to use international rules to cheat and manipulate their more honest competitors.

    There’s nothing wrong with free trade, Austrian economic principles, etc., on a level playing field. Please show me where these conditions exist in the world today. China?

    So, tariffs are appropriate for the bad countries, which is a long overdue F-you. If they don’t like it, they can improve their morals, become fairer, less corrupt– or starve.

    We do not live in a perfect world, so let’s not pretend that we do.

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    1. MarkT

      We don’t need to live in a perfect world for what I’m saying to apply. Nor does a foreign government introducing subsides mean it’s in your interest to introduce tariffs in response. No more than one lemming jumping off a cliff mean that you should follow them.

      To take your example, if the Japanese government subsidised their electronics manufacturers, and undercut US manufacturers as a result, then it means US consumers benefit with cheaper goods. Yes it may mean the it drives US electronics manufacturers out of business, but the US capital and labour that would otherwise have gone into electronics does not vanish into thin air. It’s made available for other industries, and will flow to those industries in which the US has a competitive advantage. Software development for instance. That sucks if you’re an electronics manufacturer, but there’s no net loss to the economy. There’s a net benefit to the US, paid for by the Japanese government.

      As Hazlitt brilliantly and simply shows, you need to take into account both the “seen” and the “unseen”. The “seen” is obvious – the loss of jobs in electronics, but what’s largely unseen is the new investment that occurs in its place. By ignoring the “unseen” you’re making the same mistake as Keynesians, who only focus on the direct benefits of government expenditure on certain industries, but ignore the negative effects of redirecting resources away from more efficient ones.

      The only valid exception to this principle is if it’s a matter of national security. You wouldn’t for instance allow the Russian government to subsidise weapons manufacturers and then proceed to buy all your weopons off them – because if you end up in a war with them you’d be exposed. That’s not what we’re talking about here though.

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      1. areukittenme

        But Mark T, after the Japanese destroyed their competition, the American electronics manufacturing industry, by offering unsustainable low prices, didn’t they just hike up their prices? So then the American consumers lose twice, once with the price hike and again with an inevitable price hike due to less competition in the market.

        How can Western countries compete with the low wages in 3rd World countries? If we don’t protect our industries, what will we be left with? I know, how about we invent some green, recyclable, solar, geothermic, energy source! Come on, let’s all put our minds together. Cause we’re so smart and all… Pipe dream.

        More likely we will be left with a growing welfare state. And down the road, communism. Then we will all be free! To die horrible, gruesome deaths like the Holodomor. Yay!

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      2. Andy in FL

        “if the Japanese government subsidised their electronics manufacturers, and undercut US manufacturers as a result, then it means US consumers benefit with cheaper goods.”

        I see, so it’s OK for other countries to screw us over, as long as someone, somewhere benefits.

        I have some scars on my knuckles (from punching teeth through soft lip tissue) and some scars on my face for taking punches in return– so my DNA seems to tell me to hit such Japanese practices good and hard until they learn to play nice. Then, whatever benefits you propose would eventually still happen. And a lesson would have been learned, for the Japanese and others as well.

        I want US companies, and all companies in all countries, to compete on a level playing field. If the Japanese would have fairly figured out how to make better radios and televisions, and at a cheaper price, that would have been different. That would have been something enterprising Americans could have learned a proper lesson from. But that was not the method the Japanese chose. So, my unalterable answer would have been to punch them in the mouth.

        (I’m not picking on the Japanese per se. I was stationed in Japan for five years, and my wife is from there. Just in case anyone wanted to jumped to any silly conclusions.)

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      3. MarkT

        @ Andy: What part of “there’s a net benefit to the US” did you not understand? If you can address my argument and still disagree then fine, but don’t evade and straw-man it.

        @areukuttenme: You under-estimate the ability of a free market in general (and the US in particular ) to adapt to changing price signals and reallocate resources quickly. It does that far quicker and more effectively than any top down control could ever achieve. A system built around coercion can never compete with a system built around individual freedom (listen to what Jordan Peterson has to say on this if you don’t believe me). If the only hope for the US economy is to make things that other countries can make better or cheaper (as you suggest), then your country is well and truly screwed anyway and you’re living on borrowed time. But I don’t think it’s anywhere near that bad.

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  4. I can see it now. American steel industry is decimated… and we get into a hot war with China.

    “Pardon me, Mr. Premier… I know we’re busy killing each other and stuff, and trying to blow each other to kingdom come and hoping it doesn’t go nuclear. But could you please see your way to selling us 1 million tons of steel; oh, don’t forget the electronics we need too. Thanks ever so much.”

    There are considerations beyond the greatest economic good.

    https://www.linkedin.com/pulse/fly-free-trade-ointment-david-hunt-pe/

    Liked by 1 person

    1. MarkT

      I agree in principle that national security may be a valid reason for the state to prop up certain industries, even if there’s an economic cost. But that’s not what’s being argued here.

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  5. Dave

    It’s been a while since I read Adam Smith, but was not all his examples dealing with nations of comparable standards of living? English trading with Dutch, Scots farmers with French winemakers etc?

    We didn’t exactly have free trade with India and China did we? I seem to recall the Royal Navy having a say when the Chinese refused our offers, and the East India company literally deploying real companies. Of soldiers.

    What we do know is that nations like China are mercantilist, and that buying farmland in Australia or the port of Darwin is in no way a ‘win win’ exchange for us.

    As a side note, try to find foreign electronics in Japan. Their stores are stocked with their own brands, they have full employment, and those many companies continue to exist. They do allow certain products in of course that are very popular internationally (iPhones, Samsung phones etc), but the general rule holds.

    I have recently been purchasing items from Amazon USA, and if Japan Amazon has the same product, you simply cannot buy it on the international sites. USA/UK etc won’t ship it. You need to join Amazon Japan and pay much much more.

    Now for me as a consumer it’s frustrating, but when I look around at all of these Japanese attending to their work with pride, and almost no homeless and no welfare visible, it makes me shut up and realise my individual benefit is outweighed by the need for Japan to do the best by its own people first and foremost. As every government should.

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  6. U.S. manufacturing output is at a record high. The reason that the number of manufacturing jobs has decreased is not because of free trade, but rather because of our incredible increase in manufacturing productivity over the years. Face it. Manufacturing jobs are not coming back, just like farming jobs are not back despite the massive increase in U.S. farming output.

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