Free Trade vs Protectionism: Weapon of Mass Distraction

By Richard D. Wolff. This article was first published on Naked Capitalism.

For centuries now, countries where capitalism prevails – where businesses are organized around the employer-employee relationship – have shifted their governments’ international trade policies back and forth between free trade and protectionism. Trump’s tariff threats and plans are nothing new. They represent just the latest shift in an old, old oscillation.

Free trade just means that government interferes relatively little in the goods and services trade crossing its national border. Protectionism means that government intervenes relatively more to shape international trade. Major means of protectionism include quotas (limiting quantities of items crossing borders), tariffs (taxes levied on goods and services when they cross a border), subsidies, and so on. The word “protectionism” reflects the chief historical reason why governments intervened: namely, to protect domestic enterprises from foreign-based competitors. For example, by quotas on how much foreigners could bring in or by a tariff (tax) on foreign imports, domestic enterprises’ profits were protected.

Struggles between advocates of free trade vs protectionism always were first and foremost struggles between industries who stand to gain more from one than the other. The US government, for example, has long imposed quotas on sugar imports. Partly as a result, today’s US sugar price is over 40% higher than the world price. US sugar producers can charge us more because the quota limits how much of US demand cheaper external sources are allowed to supply. The quota protects sugar industry profits. For many years the US imposed a similar quota on imports of Japanese automobiles to protect the US industry’s profits. US tariffs today apply to thousands of imported goods and services yielding many billions of dollars in revenue to Washington.

On the other side, quotas and tariffs are opposed by industries seeking to lower their outlays for imported inputs. For example, sweetened food producers could profit more with cheaper sugar. They thus oppose “protectionism” and favor “free trade” in sugar. If they faced competition from foreign sweetened food, they might favor protectionism for the food trade other than sugar. Or, if sugar prices rose too high, they might switch to use corn-based sweeteners, lose interest in the sugar quota issue, and focus solidly on food protectionism. Similarly, taxicab companies would prefer free-trade in automobiles to lower their costs.

Thus, throughout capitalism’s history domestic industries’ ever-changing situations aligned them now on one side and then on the other in endless struggles between free trade and protectionism. It became more complicated when the same industry (for example, automobiles) produces and trades both inside the US and outside. In any case, each industry generally chooses between the two sides according to which is better for its profits. The stronger and more politically effective side wins the struggle to determine government trade policy.

Winning often depends on the strength of each side’s alliances with and support from the public. To that end, it is not politic for either side to identify its goal as more profits. Instead, each side insists that what it prefers is what is best for jobs, growth, environment or still other broad social goals. Both sides usually find and/or buy academics whose studies conveniently affirm broad social benefits of the buyer’s preferred trade policy. Such academics often believe that their research actually can determine which policy is best for everyone.

But, no one can do that. No one ever has, notwithstanding claims to the contrary. The reasons for this are several. First, the consequences of either policy occur directly and indirectly over many years into the future. Second, those consequences are infinite in number, diversity, and complexity. Third, they include consequences of which we become conscious and those that remain unconscious. Thus the consequences of either policy are neither fully knowable nor measurable. Moreover, because the consequences of either policy interact with all else occurring in society, disentangling either policy’s consequences from all other influences on those consequences is not doable (and never was). We can never know what all the consequences of either policy will be.

On the one hand, the battling industries don’t care about secondary, longer term consequences. For them, the likely, hoped-for, short-term impact on profits drives their behavior. Each side promotes assertions about the broad social consequences of policies with the intent thereby to acquire pubic support and thereby strengthen its side. Academics whose work makes or endorses such assertions (often with remarkable epistemological naivete) are useful for the contending industries that use them.

On the other hand, workers and their organizations sometimes ally with protectionists persuaded that protection will surely deliver more jobs, higher wages etc. Consumer advocates will often support free trade because its sure consequence, they have been led to believe, is lower consumer prices. There are countless examples where, in fact, opposite outcomes have resulted. When such organizations take positions in the free trade vs protectionism struggle, they are supporting – based on unprovable assertions – one or another industrial group’s self-serving agenda. Trump manipulated that history of position-taking to help win the election.

For workers and consumers in our capitalist system, the problem is the system, not this or that trade policy. The promises to workers about their certain gains from NAFTA enabled Trump to benefit when those promises were broken. Much the same may well befall Trump in turn since he makes comparable promises for protection against NAFTA. Capitalist employers will, as always, respond to any and every governing trade policy by advancing their interests via automation, relocation of facilities, lobbying for special exemptions, product choice and much else. They will thereby continue to generate the cyclical instability, growing inequalities, ecological devastation, etc. that beset modern society: workers’ and consumers’ real problems.

The struggle between free trade and protectionism is over which kind of capitalism will prevail. It is a struggle chiefly among capitalists (as was, for example, the history of the TPP). Those who seek to challenge and go beyond capitalism (either kind) have radically different, system-changing goals. They should participate in capitalists’ struggles such as free trade vs protectionism only if and when doing so advances their own system-change priorities.

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