Does the opposite of free trade -- quotas and tariffs designed to “protect” domestic industries and their workers -- sound like a good idea? Then why impose such “protection” only at the International frontier, Professor Hoppe asks. Why not have our own “protect Nevada” quotas and tariffs?
Under such a plan, high tariffs and quotas could be imposed to prevent the “dumping” of “cheap, underpriced autos” on the Nevada market by the greedy auto manufacturers of Detroit and Ohio, who are now so unscrupulous as to even tempt Nevada consumers with predatory “no-money-down” blandishments. This would encourage the development of a high-paying domestic Nevada auto manufacturing industry. Why, given enough time, Nevada could become self-sufficient in auto manufacturing!
This is an effective example precisely because it’s so ludicrous. Lacking any efficiencies of scale or proximity to plentiful supplies of steel, manufacturing autos in Nevada for sale only in Nevada (for never fear, other states would retaliate with similar measures) a tin-pot “Nevada auto industry” would produce enormously expensive cars without much variety to choose from -- a product line that would quickly go out of date (since innovation also costs money, taking us back to those efficiencies of scale), much like the clunky product lines of factories in the old Soviet bloc.
The Constitution bans such nonsense, thank goodness. America has long profited from free trade among the states. So, why should the same “division-of-labor” principle not hold true for international trade?
The classic real-life example is found in our current tariffs and quotas designed to keep out cheap, imported foreign sugar. This works real well for a few thousand Cajun and Hawaiian sugar producers and the congressmen who keep their rigged game going, but not so well for the hundreds of millions of American consumers who pay three to four times as much for their sugar (and proportional amounts for every foodstuff containing sugar) than they would if we had free trade.
It has even cost good American jobs -- many major candy manufacturers have been driven to relocate their factories in Mexico and elsewhere.
Now, many a purist will object that “NAFTA” and our subsequent regional trade agreements aren’t perfect “free trade” -- that it doesn’t take a several-hundred-page treaty with all kind of caveats and arbitration panels to institute real “free trade,” which can be done by simply lowering the gates and letting ’em in.
Fair enough. But the current set-up looks a whole lot too “free” for at least one outfit: the senior Democratic politicians who will soon assume the leadership of the U.S. House and Senate.
“For the last six years Bush has had little difficulty getting trade agreements through a business-friendly Republican Congress,” the Los Angeles Times reported Monday, “but the new Democratic majority will include several members who campaigned against free trade.”
One of the first battles could be over the president’s authority to get trade deals approved quickly.
The U.S. Trade Promotion Authority Act, known as fast-track, allows the president to negotiate trade agreements without consulting Congress, then requiring an up-or-down vote within 90 days. But “fast-track” is due to expire in July.
Among others, Senator-elect Rep. Sherrod Brown, D-Ohio -- a foe of free trade while in the House -- has vowed to block the renewal of fast-track unless it’s amended to include “protections” for both domestic and foreign workers.
Incumbent Sen. Debbie Stabenow, D-Mich., won re-election by promising legislation to create a “trade prosecutor” to investigate countries such as China that supposedly violate U.S. trade agreements.
“Our trade policy needs to be one that expands jobs in America and maintains our standard of living. It should not be about creating a race to the bottom on wages,” Stabenow the protectionist said Friday, adding that she plans to re-submit the trade prosecutor bill in January.
(Imagine Nevada with a “trade prosecutor,” authorized to go to court against those rapacious Detroit automakers for “dumping” their jalopies here at less than some arbitrary “cost.”)
And Sens. Chuck Schumer, D-N.Y., and Lindsey Graham, R-S.C., have been pushing a bill that would impose a 27.5 percent tariff on Chinese imports until that country revalues its currency (as though governments can really control what any fiat currency is worth.)
A word of warning: America erected high tariff walls to “protect American jobs” at the outset of the Great Depression. Other countries retaliated in kind. The Smoot-Hawley tariffs helped guarantee the Depression would last for more than a decade, world-wide -- it was actually worse in 1937 than it was in 1932. And the resulting financial chaos helped pave the way for the Nazis to take over in Germany.
Many of the freshmen Democrats whose elections helped give the likes of Ms. Pelosi and Mr. Schumer control of Congress are moderates who understand the value of free trade. Bill Clinton -- who signed the North American Free Trade Act -- certainly understood, along with many Democrats who have quietly joined Republicans in supporting the ongoing trade liberalization that has contributed to our current, booming economy.
But it appears the Democrats’ core constituencies, especially the reactionary labor unions, expect a quick return for their support.
And -- hungry after 12 years in the desert -- the Democratic leaders vow to make action on trade part of their first big feast.
Democratic leader Nancy Pelosi, D-Calif., likely the next Speaker of the House, says she intends to address Democrats’ trade concerns as part of the majority’s “Six for ’06” agenda, “Looking at trade policies and making them more fair” for U.S. workers, according to her spokesman, Brendan Daly.
Note the use of the word “fair.” It may not sound much different from “free,” but it’s a favorite code-word among those who are about jack up the price of anything imported.
How far-sighted a vision they embrace on trade issues should give a good, early indicator of how the slim Democratic majority intends to govern.
The markets -- not to mention a dozen would-be Hitlers and Mussolinis overseas, hungry for signs of American abandonment -- watch, and wait.