The limits of free trade


The limits of free trade

Apr 20, 2014 2 min read

Senior Research Fellow, Margaret Thatcher Center for Freedom

Ted Bromund studied Anglo-American relations, U.S. relations with Europe and the EU, and the U.S.’s leadership role in the world.

Since the Second World War, the United States has carried the banner of free trade. It's not just a slogan: advancing economic freedom has been central to America's grand strategy. But recently, the limits of that strategy have become clear.

No one believes in completely free trade. There is no free international market in dynamite, nor should there be. But the economic argument for freer trade is simple and true. When we protect our markets, we make what we buy more expensive. A few producers benefit from the higher prices, but consumers suffer. And since there are a lot more consumers than producers, we end up collectively poorer.

That's a powerful argument, but it's hardly the only reason the United States has promoted freer trade. We realized that the economic collapse of the 1930s played a huge role in the rise of Nazism. After 1945, growth was an antidote to communism. Moreover, by unleashing the power of capitalism, we forced the Soviet Union to fight the war of rising living standards -- a war it was bound to lose.

And there was a final motive. Enemies of free trade talk a good game about being on the side of the common person. But laws are made by the elite, and when trade is limited by law, the limits will be shaped to benefit the elite. Ordinary consumers, meanwhile, pay the price.

That's why, in Victorian Britain, it was middle-class liberals who campaigned for free trade in food. For them, ending restrictions on trade was a way to promote political reform by attacking the power of the landed elite. They believed the world would be more prosperous, and more peaceful, if governments of the people prevailed.

And they were on to something. As Steven Pinker emphasized in his 2011 book "The Better Angels of Our Nature," the rise of international trade parallels the rise of peace in the West. It's not a sure thing, of course. But the United States showed great wisdom by adopting the free trade strategy 1945.

In recent years, however, the strategy has come under pressure. Its weakness is that it only works in the long term: free trade is not about solving today's problems. Indeed, in the short run, trading with autocracies can empower them, as President Ronald Reagan realized.

In the early 1980s, for example, one of the most contentious issues in NATO was whether to build natural gas pipelines that would allow the Soviets to fuel the West. Reagan rejected the argument that the pipelines, by constraining both sides, would serve peace. In the short run, he believed they would be a lifeline for the Soviets, and a noose around the neck of the West.

Today, it's Russia's supply of natural gas to the West that gives it the upper hand in Ukraine. In the long run, Russia needs the money from selling gas; but in the short run, Europe wants to stay warm. And short run trumps long run.

Much the same is true in East Asia, where bipartisan U.S. strategy has sought to integrate China into the world economic order. In 1999, President Bill Clinton argued that admitting China to the World Trade Organization would accelerate its internal economic reforms. Instead, China's reforms have slowed, not accelerated.

As President Barack Obama heads to East Asia this week, and Ukraine hangs in the balance, the answer is not to turn our backs on economic freedom. It is the right strategy for a free nation like America. But we can't keep on expecting freer trade to do too much too fast. Trade ties won't restrain Vladimir Putin, and trade organizations won't force China to change. After all, as the United States recognized after 1945 by joining NATO, as it simultaneously campaigned for freer trade, geopolitical leadership is about more than money.

 - Ted R. Bromund is senior research analyst in The Heritage Foundation's Margaret Thatcher Center for Freedom.

Originally published by Long Island Newsday