It May Sound Good, But Economic Nationalism Will Not Make America Great

In the long term, free trade is good for America. Economic nationalism is not.

By Samuel Gregg Published on November 27, 2016

Following Donald Trump’s presidential election victory, America may be headed in an economically-nationalist direction. I don’t question the patriotism of those who advocate raising tariffs and quotas, subsidizing particular American businesses, boosting institutions like the Export-Import Bank, embarking upon “Buy American” campaigns, withdrawing from trade agreements, etc. I also understand why many support such policies. But they’re not in America’s national interest.

Yes, maintaining an economy open to global competition has costs. In the short-term, some people lose — and many of them voted for Trump. Nor can national interest be reduced to economic prosperity. Likewise, openness to global markets isn’t an excuse to open our borders to all comers or to claim that free trade somehow guarantees a peaceful international order. Free trade’s growing prevalence across the globe leading up to 1914 didn’t prevent the catastrophe of World War I.

Still America would be much better off if it maintains a basic commitment to free trade. Economic nationalism, however good it may sound, does serious damage to countries that adopt it.

Why Economic Nationalism Won’t Make America Great

Economic nationalism comes in many forms. It can range from a country shutting itself off from other national economies and striving for self-sufficiency (the formal expression for this is “autarchy”), to protectionist policies designed to shield some domestic industries and their workforces from foreign competition.

America would be much better off it it maintains a basic commitment to free trade.

Whatever the motivations for such policies, their costs vastly outweigh their benefits. In the first place, protectionism discourages American businesses and workers from focusing on producing those goods and services where they enjoy a comparative advantage vis-à-vis other nations. Not only does this undermine productivity, efficiency, and international competitiveness of American businesses. It also encourages American workers to enter industries that, no matter how much protection they enjoy, won’t be able to compete in the long term.

Second, imposing import tariffs is basically a tax on many goods and services for American consumers. Wealthier Americans can easily afford these higher prices. Less well-off individuals and families aren’t in as fortunate a position.

Yet another problem with economic nationalism is that it encourages a growing problem in American economic life: crony capitalism.

 Giving certain American businesses subsidies or lumbering foreign products with tariffs may seem like economic questions, but in practice they are ultimately political. Such policies encourage companies prefer to seek profits by lobbying legislators and bureaucrats rather than serving customers and creating value.

Subsidies and tariffs merely lull Americans into a sense of complacency, dulling our awareness that we may be losing our comparative advantage in different industries.

If you look, for instance, at America’s official Harmonized Tariff Schedule, you quickly discover that it matches the tax-code in length and complexity: close to 3,000 pages and more than 10,000 tariff lines. There’s no particular logic to all this. It simply reflects the businesses and industries that have the best lobbyists. Embracing economic nationalism will only exacerbate this problem by providing even more opportunities for lobbying for privileges.

Economic nationalism also distracts us from some of the real causes that have led to stagnation in parts of America. It’s easier to blame China, Japan, and Mexico for layoffs in rust-belt states than to ask hard questions about the refusal of unions to contemplate labor-market reform, coupled with management’s reluctance to force the issue. Both of these realities have undermined many American companies’ ability to provide better products at lower prices.

Finally, economic nationalism can’t prevent the automation of many jobs previously held by humans. Companies can chose to resist or ignore technological change. But they — and their employees — will find themselves out of business as quickly as those horse-and-buggy companies that tried to ignore the development of the car.

Subsidies and tariffs can’t fix these problems. Such measures merely lull Americans into a sense of complacency, dulling our awareness that we may be losing our comparative advantage in different industries and thus need to change.

Challenges for Free Traders

While economic nationalism isn’t in America’s long-term interests, free market advocates have to work much harder to persuade the rest of the country that they’re not in the business of selling out America. This goes far beyond disassociating themselves from coastal urban progressives who can barely disguise their disdain for flyover-country.

In the first place, free marketers should acknowledge that not every American wins, at least in the short-term, from economic globalization. Free marketers aren’t generally good at this. They don’t seem to realize that citing statistics about the falling costs of goods and services isn’t likely to impress people in rural Pennsylvania who have lost their jobs. However real such economic gains may be, they’re effectively “invisible” to many workers and their families.

Free market advocates have much work to do in persuading the rest of the country that they’re not in the business of selling out America.

Free marketers also need to show that a commitment to economic freedom doesn’t mean that you refuse to help those who lose their jobs. This need not result in yet more dependency-creating, welfare programs. Instead the focus should be upon helping displaced workers transition to new private-sector jobs in market-friendly ways.

One way of realizing this goal is to remove labor-market inflexibilities, such as regulations that makes hiring and firing hard for businesses. Over time, this would enhance overly employment security — which is quite different from the security of one particular job.

More generally, belief in and pursuit of free trade policies shouldn’t be presented in quasi-religious terms. There’s no better way to ensure that ordinary people think they’re being sacrificed on an altar of globalization. We do not, and never will, live in a perfect world. Free markets won’t save your soul, and free trade and economic liberty aren’t universal cures for all America’s problems. Maintaining and furthering a national economy’s openness requires great political prudence — especially if we want to avoid the type of backlash against economic globalization we’re witnessing in America today.

Above all, free traders in America need to make it clear that they’re just as patriotic as economic nationalists: that they advocate economic openness to the world not because they’re out-of-touch bicoastal globalists, but precisely because they love America.

Patriotism is love of the true good of a nation. That’s the ground upon which resurgent economic nationalism needs to be debated. The real question is whether American free marketers are up to such a challenge.

 

Samuel Gregg is Research Director at the Acton Institute and author of For God and Profit: How Banking and Finance Can Serve the Common Good (2016).

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  • Paul

    From the article: “Free marketers also need to show that a commitment to economic freedom doesn’t mean that you refuse to help those who lose their jobs. This need not result in yet more dependency-creating, welfare programs. Instead the focus should be upon helping displaced workers transition to new private-sector jobs in market-friendly ways.

    One way of realizing this goal is to remove labor-market inflexibilities, such as regulations that makes hiring and firing hard for businesses. Over time, this would enhance overly employment security — which is quite different from the security of one particular job.”

    Is this passage supposed to actually help people NOW in a dying town? I get the overal point but this is much more than just a job. We can talk all day about transitioning to new jobs but what jobs that need what skills that pay what and where? How does this help the laid off factory worker NOW? It doesn’t. It’s just more ivory tower gobly gook in the ears of desparate people who have been abandoned. It reads as a message from one elite to others that flies over those impacted by the policies of the elites. It smells of the same old paternalism and does little to break down that disdain you acknowledge.

    Like I said I get the point, you want to bust unions, get rid of minimum wages, make it easy to hire and fire. I understand that is good for business. But here you’re failing to sell the medicine to the dying patient.

  • spadestick

    You’re misinformed with twisted words coming from the media. Trump’s always emphasized that he is for fair trade, not free trade. Free trade is rubbish. Smart Fair trade is win-win. He’s never mentioned he wants nationalist, protectionist no trade policies in place. He’s not a stupid socialist to end up like Venezuela, Cuba or North Korea.

  • m flight

    Hello Sam, As a resident of the rust belt, more specifically Crook County Illinois, it is not only the unions that are the problem. High taxes to support horrible schools, public sector employees and political boondoggles all contribute to economic death spiral. What do you get for the highest real estate taxes in the United States? The daily death of 1000 cuts from the parasite ruling class and their enforcement thugs. Every time they need money they send out a building inspector to write a code violation and then charge for the building permit and inspection fees to complete the repairs. Or send a cop on to your property to write a ticket on your vehicle or actually camp out on your private property to set a speed trap. And then your house, your cars, your business gets broken into, vandalized and property stolen and the police show up, take your information and never hear from them again. It is just the cost of living in a failed state. Or when fleeing the county, state and municipality they tag you with the exit fee of transfer taxes. The coming of winter is a stark reminder of the insanity of living here or owning property or operating a business here. Unions and labor are a part of the problem but government at every level is THE PROBLEM. We need a lot less of it around here. Less takers and more makers.

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