“For the first time in more than two decades, trade barriers are moving in the wrong direction. This isn’t the 1930s … but Pat Buchanan is one happy camper these days.”
So writes Steve Moore in a long and anguished column in the Washington Times titled, “A Comeback for Protectionism.” A free-trade purist at Cato Institute, Moore is right to be alarmed.
Americans, souring on what global free trade has done to them, are again turning to the philosophy that converted America from 13 rural colonies into the mightiest industrial power the world had ever seen – in a single century.
The economic patriotism of Hamilton and all four of the presidents on Mount Rushmore is getting a rehearing for the best of reasons. Free-trade globalism has failed America.
The numbers do not lie. After throwing open U.S. markets, we are now running a $500-billion-a-year merchandise trade deficit, largest in human history, equal to 5 percent of our $10 trillion gross domestic product. And what has a decade of these soaring trade deficits produced?
First, a farm crisis. American farmers are the most efficient on earth, but they cannot produce food for less than in foreign lands where the environmental rules are lax, and the labor is plentiful and cheap.
While America still runs a modest surplus in farm goods, it has been shrinking under free trade. That $200 billion farm bill Moore bewails is simply a bailout of U.S. farmers whom free traders sacrificed on the altar of their Moloch, the Global Economy.
Second, a crisis in manufacturing. U.S. companies have been closing factories, shedding workers and building plants in Mexico and Asia. As goods produced by $2-an-hour foreign labor poured into the United States, they have killed off many remaining U.S. factories. America has been de-industrializing as rapidly as the British, before German submarines finally awakened the Brits to the truth that free trade is not free.
Third, a growing U.S. dependency on foreign producers, not only for oil but the necessities of our national life and national security.
Fourth, these mammoth trade deficits have poured hundreds of billions of dollars into overseas coffers, that foreigners have used to buy up U.S. assets. According to Bridgewater Associates, foreign-owned U.S. assets rose from 33 percent of U.S. GDP in 1990 to 78 percent today. Foreigners now own 22 percent of U.S. corporations, 24 percent of U.S. corporate bonds and 48 percent of our liquid Treasury market.
But trade deficits of 5 percent of GDP cannot continue indefinitely. Eventually, a currency begins to fall, as has been happening to the dollar, and the price of the foreign goods on which America now depends rises. And as prices rise, Americans buy less from abroad.
The problem? The world has become dependent on the American consumer. But, if Americans can no longer afford all those foreign goods, and they begin buying less, these nations will go into recession and be unable to service their foreign debts.
In 1997-1998, the United States, with a bull market and a roaring economy, bailed out the bankrupt regimes of Asia and Latin America. By buying their exports, giving them IMF loans and running a huge trade deficit, we pulled them out of the ditch and onto their feet.
But America’s economy is no longer booming. With the dollar falling, we cannot afford to forever buy up foreign goods. And with the U.S. budget now in deficit, the willingness of Americans to bail out foreign bankrupts is going to disappear. We may just be headed for the terminal crisis of the Global Economy.
Yet, the president is now being bashed for the most sensible decision he has taken to put America first: the imposition of tariffs on foreign steel being dumped into the United States, which had put 30 U.S. steel companies in bankruptcy.
“You will start a trade war!” they screamed.
What happened? The EU, its huge trade surplus with America at risk in any trans-Atlantic trade war, chickened out and backed down. The president prevailed. The EU will not impose retaliatory tariffs. Smart fellows.
As for the U.S. steel mills Bush sought to protect, consider this item buried inside the free-trade Wall Street Journal.
Under a headline, “Steelmakers Post Improved Results for 2nd Quarter,” a reporter writes: “Buoyed by import tariffs, the country’s two largest steelmakers reported vastly improved second-quarter results, as mills operate at nearly full capacity and prices rise.
“The outlook for the rest of the year looks solid …”
Well done, Mr. President.