Once more on free trade

Posted: 28 July 2016 in Uncategorized
Tags: , , , , , ,

Free trade - 5

Every once in a while, a reader sends me the link to an article and asks me what I think of it.

The most recent one is Geoff Gilbert’s [ht: db] piece, “Who Plans the Economy? Imagining Fair and Free Trade.”

Clearly, at least in terms of U.S. presidential politics (but also, I think, in the United Kingdom and across Europe), the issue of international trade is “hot.” Donald Trump has certainly focused on the downside of U.S. trade details (such as NAFTA, which he has promised to “immediately renegotiate. . .to get a better deal for our workers”), as has Bernie Sanders (who eventually succeeded in pulling Hillary Clinton in that direction).

Gilbert, for his part, argues that

The way we talk about trade is all wrong. We’re told we have two options: the “free” trade status quo or protectionism. But many other possibilities exist, if we are willing to entertain different rules for owning and controlling capital both within and between countries.

I think he’s right. The free trade versus protectionism argument is exactly the way the debate has been framed across the history of capitalism and within mainstream economics. Capitalists and mainstream economists have been mostly in favor of free trade, which they then counterpose to protectionism, that is, one or another regulation of or barrier to free trade (such as national content legislation, tariffs, and so forth).

That’s it? Those are the limits within which we can discuss international economics? It’s just like the debate between markets and planning or export-led and import-substitution development—a false, narrowly circumscribed debate, and often a pitfall, especially for critics of free trade. Many times (as with Trump, Sanders, and now Clinton), they end up criticizing free-trade agreements because of their negative impact on workers but then moving in the direction of one or another kind of protectionism, as if that’s the only alternative.

And while Gilbert is correct in arguing that free trade is “corporate-managed trade for corporate interests,” he fails to recognize that protectionism is, too. Both Alexander Hamilton and Friedrich List sought to protect “infant industries” from foreign competition just as the U.S. steel and sugar industries did a couple of centuries later—and there many examples in between. They were all defending”corporate-managed trade for corporate interests,” but in the form of protectionism.

In fact, as I argued back in 2011 (in criticizing Harvard economist Greg Mankiw), the whole idea of international trade as trade between individuals (from which we all benefit, at least on aggregate) is profoundly misleading.

What Mankiw and other neoclassical economists refuse to understand is that, when international trade takes place, it has nothing to do with an individual in one country (say, the United States) buying a scarf from an individual in another country (say, China) as if they were just equal neighbors engaging in a mutually beneficial transaction. There are other economic processes involved. The consumers in the United States sell their ability to work to a corporation, and then use their wage or salary to purchase goods, some of which are produced in other countries. Some of those corporations have decided to produce goods in other countries, and thus to export jobs, while other corporations have decided to purchase the goods they sell either from their own subsidiaries in other countries or from corporations located in other countries. And in those other countries, the workers are not deciding to sell their goods to consumers in the United States; the corporations they work for are making those decisions.

Simply put, international trade doesn’t take place either between individual consumers and producers or between countries. International trade takes place between and, increasingly, within corporations located within different nations. They make the decisions about where and how goods will be produced, and where and how people will be employed.

What people who actually work for a living understand all too well is that both the much-vaunted freedom in free trade and the supposed unfreedom of protectionism are merely different ways corporations and their representatives have, at different times and places, chosen to structure international trade to advance their own interests.*

That’s certainly what Karl Marx and Friedrich Engels understood in the mid-nineteenth century, when free trade was also being hotly contested.

The question of Free Trade or Protection moves entirely within the bounds of the present system of capitalist production, and has, therefore, no direct interest for us socialists who want to do away with that system.

But if we refuse the narrow and misleading terms of free-trade-versus-protectionism debate (as both Gilbert and I believe we need to), does that mean we have nothing else to say or propose?**

Fair trade is one such alternative. Starting in the mid-1990s, George DeMartino has suggested one possibility: a fair-trade policy based on a Social Index Tariff Structure.*** The basic idea is as follows:

SITS is a multilateral trade regime that would promote benevolent means by which countries seek to improve their trade performance and growth while at the same time punishing countries that pursue export-promoting strategies that undermine human development, equality or sustainability. It does this through a multilateral system of social tariffs.

It can be thought of as a leveling-up, rather than a race-to-the-bottom, approach to international trade—a way of taking areas of economic and social life out of competition, rather than subjecting them to the competitive pressures entailed in both free-trade and the usual protectionist approaches.

Gilbert, in invoking the Mondragón Cooperative and targeted tariffs, makes a similar argument (although, to correct one point, that’s not what Raúl Prebisch and UNCTAD were attempting to do in the 1940s and 1950s) :

The idea is to use tariffs to favor goods produced by democratically owned and controlled capital at home and throughout the world.

Any systemic solution to inequality and mass economic deprivation will need to expand the amount and types of people who get to make the investment decisions that determine where industry and jobs will exist and at what pay.

One can make exactly the same argument about free trade—to expand trade (either within or across national boundaries) by democratically owned and controlled enterprises.

What are we left with then? To my mind, we can refuse the terms of the existing debate between free trade and protectionism and, at the same time, speak out in favor of either free-trade or protectionist policies as long as the goal is to build and expand institutions and spaces “capable of actually placing investment decision-making in the hands of the people.”


*Perhaps less understood is the fact that, as I argued three years ago, “much of the international trade that takes place these days does not occur through market transactions.” Instead, a great deal of trade occurs within corporations; it is intra-firm trade, transactions among and between different parts of giant multinational corporations, that is planned by the corporate directors.

**Marx’s own famous option was to speak in favor of free trade because, as Engels explains,

To him, Free Trade is the normal condition of modern capitalist production. Only under Free Trade can the immense productive powers of steam, of electricity, of machinery, be full developed; and the quicker the pace of this development, the sooner and the more fully will be realized its inevitable results; society splits up into two classes, capitalists here, wage-laborers there; hereditary wealth on one side, hereditary poverty on the other; supply outstripping demand, the markets being unable to absorb the ever growing mass of the production of industry; an ever recurring cycle of prosperity, glut, crisis, panic, chronic depression, and gradual revival of trade, the harbinger not of permanent improvement but of renewed overproduction and crisis; in short, productive forces expanding to such a degree that they rebel, as against unbearable fetters, against the social institutions under which they are put in motion; the only possible solution: a social revolution, freeing the social productive forces from the fetters of an antiquated social order, and the actual producers, the great mass of the people, from wage slavery. And because Free Trade is the natural, the normal atmosphere for this historical evolution, the economic medium in which the conditions for the inevitable social revolution will be the soonest created — for this reason, and for this alone, did Marx declare in favor of Free Trade.

***DeMartino has outlined that policy in a series of articles, including “The Social Index Tariff Structure: An Internationalist Response to Economic Integration (with Stephen Cullenberg), in the Review of Radical Political Economics (1994, vol. 26, no. 3, pp. 76-85) and “Achieving Fair Trade Through a Social Tariff Regime: A Policy Thought Experiment” (with Jonathan D. Moyer and Kate M. Watkins), in the Cambridge Journal of Economics (2016, vol. 40, pp. 69-92) (unfortunately, behind paywalls).

  1. […] weighed in back in July, trying to move the debate beyond the free trade-protectionism terms in which it has been framed. […]

  2. […] agreements and the whole panoply of policies associated with globalization and neoliberalism (e.g., here and here) understand they’re not the sole or even main cause for the deteriorating condition […]

  3. […] decide where and how jobs will be created—and, of course, where they will be destroyed. Which, as I explained last year, is exactly how international trade takes […]

  4. […] decide where and how jobs will be created—and, of course, where they will be destroyed. Which, as I explained last year, is exactly how international trade takes […]

  5. […] so opposed to raising Mexican workers’ wages—which, after all, is merely an example of leveling-up as against a […]

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