The Free Trade Folly
Trade policy has failed American workers, their families, and their communities over much of the last 30 years. Until the changes made in the Trump administration, it led to the offshoring of American industry, the closure of thousands of factories, the loss of millions of jobs, the decay of many communities, stagnating wages, rising inequality, and massive trade deficits. The answer to this problem is not closed borders and autarky but rather a change of course from globalist, corporate-driven free trade to sensibly leveraging our great market to achieve balanced trade and more higher-paying American jobs.
Trade policy went off track because politicians in the 1990s embraced a mythical, absolutist free trade that never existed except in the minds of academics. The Clinton administration, with strong support from both parties, signed NAFTA, granted China most favored nation benefits, and subjected the nation’s economic policy to the judgment of WTO bureaucrats. This approach was always controversial but prevailed in Congress and across several presidential administrations because of aggressive lobbying by multinational corporations; a naive faith in the “end of history” where all nations would come together in support of a utopian world free from bad behavior and self-interest; and, finally, the mistaken belief that maximizing consumption, efficiency, and business profits was the supreme objective of economic policy. All were wrong.
Americans are producers first, consumers second. Good jobs, high wages, and strong families should be the objective of trade policy. Productive American businesses can make profits under rules that prioritize our workers, farmers, and communities.
Conventional wisdom holds that conservatives are free traders. This is wrong too. Free trade is a philosophy that conserves nothing. Globalization produces disruption, dislocation, and destruction; conservatives by contrast seek to defend traditional values and institutions, preserve the social fabric, and ensure the conditions for families and communities to flourish. Conservatives are not tempted by the fantasy that nations will abandon self-interest to cooperate for the sake of global harmony.
From the beginning of our republic, conservatives supported some form of an “American System”—the wise and measured use of tariffs, infrastructure investment and, where necessary, subsidies to strengthen our manufacturing base and create good jobs. This was the clear prescription of Alexander Hamilton and the approach of all 12 Republican presidents before the Second World War, and it created the largest economy and strongest middle class in the world. More recent Republican presidents, particularly Ronald Reagan and Donald Trump, embraced the sensible use of tariffs and threatened to limit market access to advance America’s national interests in trade. Their focus was on supporting American workers as producers and reducing pernicious deficits.
Conservatives have long understood the danger of trade deficits. In 2022, the American trade deficit in goods and services approached an unbelievable $1 trillion and the deficit in goods was nearly $1.2 trillion.
When a country runs decades of huge trade deficits, it is transferring its wealth overseas, often to its most dangerous adversaries, in return for higher short-term consumption. A shocking statistic makes this point: The net international investment position of the United States—how much Americans own in equity, debt and property overseas compared to how much foreigners own in America—is negative $17 trillion. Foreigners permanently own $17 trillion in American assets, in excess of what Americans own around the world. That deficit has increased over five-fold in just the last 20 years. The permanent ownership of American property means that foreigners not only control the assets, but also capture the future earnings from them. We are literally trading the future control of our country, the wealth of our children and grandchildren, for current consumption—cheaper TV sets and sneakers. This is madness.
Addressing this problem will require the New Right to supplement the traditional right-of-center emphasis on investment-friendly tax and regulatory policies with a willingness to use subsidies when needed to assure fairness and success for businesses in strategic sectors. We should also continue working to open export markets for our productive farmers and manufacturers, but we should no longer offer the carrot of even greater access to the American market, risking more of our jobs for openings overseas that never seem to come. That has failed. Instead, we must insist that the countries running large, persistent surpluses with us open their markets to our products and threaten otherwise to limit their access to America. Buttressing these efforts to promote fairer trade, we also need a policy of carefully calculated tariffs on most imports to force trade overall into balance. Trade is good for America, but only when the trade is imported goods and services for exported goods and services (not American assets), so that demand for American labor remains strong.
Finally, American policymakers must recognize that China is an extremely dangerous adversary that is determined to supplant us as the global superpower by whatever means necessary. Proclaiming the problem and then doing nothing, the approach favored by many politicians, is not enough. They cannot claim to understand this dire threat to our way of life but still want to continue business as usual on trade and maintain our perilous dependence. We transfer $300 billion of assets to China every year. We are building their economy and their military. No country in human history has done this for an adversary.
America needs to begin the process of strategically decoupling our two economies, so that trade and investment are occurring only when balanced and in our interest. Anyone still arguing for economic integration or partnership after all these years of evidence is unworthy of support and certainly no conservative.