The Mises Institute monthly, free with membership

Sort archived Free Market articles by: Title | Author | Article Date | Subject

July 1996
Volume 14, Number 7

Why Protectionism Sells
James Sheehan

Voter opposition to major "free trade" agreements helped propel a surge in protectionist rhetoric this year. Even constituencies when should be naturally free trade--Republican conservatives--have fallen prey to old fallacies.

But mainstream Republicans largely have themselves to blame for this phenomenon. By allowing straightforward free trade agreements to be encumbered with special interest favors, they have opened the door to political controversy.

The policy of allowing consumers the freedom to choose whatever imports they want is explained in any economics textbook. A law eliminating bureaucratic trade restrictions could fit on a single piece of paper. But the thousands of pages of trade legislation on the books has little in common with the free trade found in textbooks.

The designers of the lengthy Nafta were so busy doling out favors to exporters that they virtually ignored the American consumer. Nafta's promotion of strictly regional commerce subverts the whole notion of consumer choice. Misunderstanding the root purpose of free trade, Nafta supporters falsely predicted an export boom to Mexico which would create 200,000 new U.S. jobs. The Mexican people, told to expect surging living standards, are instead suffering through their country's worst economic collapse since 1932.

Most people are not aware of Nafta's finer details, but their skepticism of government schemes is well-placed. The legal entanglements of Nafta's interventionist bureaucracy belie its free trade label. An environmental commission is siding with green-movement agitators to kill plans for a cruise-ship pier in the resort town of Cozumel, a blow to economic development and the tourist industry.

Another Nafta creation, the North American labor commission, exists to harass employers. Sprint was subjected to televised show-trial hearings, which accused the telephone company of violating worker rights by closing a money-losing division. Though Congress has failed to enact a single significant reform of excessive federal regulations, it has somehow found the money to pay for new international regulation and micromanagement by Naftacrats.

Meanwhile, those parts of the treaty meant to ease government restrictions are being ignored. In all three Nafta countries, cross-border commerce is being obstructed by a rash of customs and administrative barriers, such as nuisance "anti-dumping" suits. Deregulation of transportation rules has been suspended because Nafta officials want to create a brand new trucking safety bureaucracy.

A recent managed-trade side deal with Canada imposes new export taxes and price controls on lumber, economic restrictions which will have the effect of raising U.S. home construction costs. Special trade barriers are being devised to protect domestic producers of agricultural commodities such as tomatoes in order to woo electoral constituencies in Florida and California.

After the peso crash, the Republican Congress allowed scarce tax dollars to be sent south of the border to rescue foolish Wall Street speculators in Mexican bonds. Though trade and investment subsidies contravene all accepted notions of free trade, the peso bailout is proclaimed today as Nafta's finest hour by the U.S. Treasury. The unpopular bailout reinforced the perception that the GOP's primary concern is helping big business, just when its reform agenda was being portrayed in the media as an attack on programs for children, the poor, and the elderly.

The shenanigans of mercantilist trade policies have backfired on the Republican mainstream, creating a volatile issue. Had Republicans not been so willing to compromise on principle, allowing the public interest to be sacrificed to special interest pleadings, their trade policies would not be vulnerable to attack.

Government-negotiated trade deals have done much to confirm the impression that while the GOP preaches economic liberty, it practices a form of corporate statism in which markets are managed for the powerful at the expense of the ordinary American citizen.

Most Americans are not protectionists, and they don't blame imports for their problems. Yet they have every reason to believe that government-negotiated trade agreements represent the worst of Washington politics. Insofar as Nafta-like deals are associated with free trade, arguments for protectionism will have an enthusiastic audience on the campaign trail.

Republican leaders, for all their indignation against "protectionism," have only themselves to blame for the tragic public contempt for free trade. If they truly believe in free enterprise, they will start practicing what they preach, and repeal mercantilist trade deals.


James Sheehan works for the Competitive Enterprise Institute


Close Window