During the Saturday ‘debate’ of Republicans, Mr. Trump said that he believes in free trade and then added: “but.” Parsing this, Mr. Trump does not believe in free trade, he merely wishes not to say so. His competitors are all similar, though of course, they do not wish to say that either. None spoke off it but Mr. Obama is the same.
Adam Smith, the father of economics, devoted much effort to opposing unfree trade in Great Britain, a policy called “Mercantilism” or protectionism that simply means that government handicaps foreign producers so that they can’t compete with local producers.
Local producers rewarded politicians for enacting such policies of course, a reflection of corruption. Professor Smith pointed out that the inevitable result was local consumers then had to pay too much for the goods involved. As that understanding spread, governments were forced to restrain their mercantilism. That pleased consumers but it did not please politicians, who lost a source of support.
Well over a hundred years later (time for most to forget Professor Smith), John Maynard, Keynes wrote a book restoring government intervention to respectability and that ended the Smith definition of “free trade.” Instead of nonintervention by government, “free trade” was now defined as government intervention for the general good. Yeah …
So now, all politicians can be in favor of “free trade” which sounds good, while meaning that they will decide trade terms in place of letting the market do so as Professor Smith had urged. Trade is now not a matter of bargains between buyers and sellers; it is a matter of treaties between governments first, as the recent Pacific Trade Partnership testifies. And consumers pay politically established rather than market prices, mostly unknowing.
That is what Mr. Trump and all of his rivals call: “Free Trade” these days. With help from the public schools, they have so far, escaped unscathed. With politicians, it’s useful to listen to what they mean, rather than what they say. We all know that naturally but sometimes it seems convenient to forget.
Professor Smith noted that forcing local consumers to buy overpriced goods from local producers when cheaper imports were available simply expanded local economic inefficiency and reduced competitiveness. It is shooting oneself in the economic foot. The wiser choice is to find or develop goods that provide a local competitive advantage and rely upon those for trade. That, after all, is what China, India and Mexico are doing, isn’t it?
But government economic regulation and other interventions aren’t good for that …