On July 15 President Trump tweeted: the European Union is America’s “foe” because of “what they do to us in trade.” The European Council President Donald Tusk frantically responded: Europe and America are the “best of friends” and anything else is “fake news.”
America and the EU are best friends. Whoever says we are foes is spreading fake news.
— Donald Tusk (@eucopresident) July 15, 2018
Many free traders see this as far more than just rhetoric. Economic historian Adam Tooze writes in the New York Times that Trump is “deliberately foster[ing] economic nationalism.” In this way, he’s little better than China’s President Xi Jinping or Russia’s Vladimir Putin—how dare they upset the liberal economic order?
Tooze, like all good economic liberals, thinks Trump’s view of national competition is antiquated—and dangerous. How can anyone fail to see the benefits of free trade? “We global” is not just a DJ Khaled album: it’s an affirmation of principle, a statement of fact.
Of course, Mr. Tooze’s world is nothing but a dream. It’s time he—and every other free trader—awoke from their intellectual stupor.
the future is the past
Tooze argues that Trump’s view of international competition is archaic:
To think. . . of nations locked in mortal economic rivalry shows a grave misunderstanding of how competition actually works. . . If neoliberalism is about anything, it has been about creating the largest possible economic space for competition. But the protagonists aren’t supposed to be states. . . but businesses, investors and workers.
Basically, Tooze thinks states should cooperate, and leave the competition to individuals. This makes sense, but only theoretically. In reality, most nations are unwilling to simply melt away for the benefit of global citizens—even if this enriches their own people. After all, money is power; and politicians, be they democrats or dictators, are loth to surrender either.
Also, cheaters prosper.
Consider how America imports Chinese goods with minimal scrutiny, while China bars most American companies from operating in China. They do this not because they’re stupid—as free traders imply—but because it works. That is, China gains more from predation than free trade. And it’s not just about the trade deficit. China also steals roughly $400 billion in American intellectual property annually.
Why would China want to trade with America when they can pillage us instead? They wouldn’t. It would be unreasonable.
President James Monroe adumbrates my point in his 1822 State of the Union address: “whatever may be the abstract doctrine in favor of unrestricted commerce,” the conditions necessary for its success—reciprocity and international peace—“has never occurred and cannot be expected.” Monroe is quite right: “real international free trade” is a unicorn, as rare as “real communism.” Not only has it never existed, but it has always failed when attempted between multiple states.
heads I win, tales you lose
Tooze’s argument also suffers from a major dialectical flaw: he discusses free trade only on its own terms. That is, his analysis considers how the addition of free trade helps or harms us, but does not consider how the subtraction of protectionism helps or harms us.
Economists often conflate these two distinct questions because of what I call the heads-tails fallacy. This fallacy occurs when people view two systems as opposites, and thus assume that the costs and benefits are zero sum—a benefit on one side of the coin is necessarily a harm on the other. Although this makes intuitive sense, it’s often untrue when dealing with complex systems. Benefits and harms may inversely correlate, but not necessarily. You need to study each “side of the coin” separately.
Tooze—like most liberal economists—fails to look at free trade and protectionism separately. For example: Tooze correctly notes that more-integrated economies are harmed by greater risks of economic contagion. Thus, an implied benefit of protectionism must be decreased vulnerability to contagion. This is true.
However, Tooze also argues that a benefit of free trade is greater competition between businesses and individuals. Thus, the implied harm of protectionism is decreased competition. But this implication is false, even though it makes intuitive sense. This is why the heads-tales fallacy is so dangerous.
Protectionism actually increases global economic competition.
Economic competition, like biological competition, is multidimensional. Consider the levels of Darwinian pressures imposed on humans: group selection operates at the tribal level, as more successful tribes outcompete less successful tribes; and both kin and individual selection operate within the tribe, that is, more successful families and individuals outcompete the rest. More surprisingly, Darwinian pressures work within our bodies at the cellular level whenever the body engages in autophagy—weak cellular components and cells are destroyed first during a fast.
If biological competition is ferocious and multidimensional, then economic competition is no different. Individuals compete with one another for wealth, as do (successful) families. Businesses also compete. But productive competition doesn’t end with private entities: cities, nations, and civilizations also compete. In fact, this layer of competition may be the primary engine of growth.
For example, the economic and technological explosion in Renaissance Italy was motivated, to no small degree, by largely non-violent competition between cities—glory for glory’s sake. Likewise, the Industrial Revolution was born of Britain’s struggle for survival against France. In this case, necessity was indeed the mother of invention. And of course, the civilizational clash between the West and Soviets propelled man into the space age. This is not to credit government with mankind’s greatest inventions, but we must recognize that competition between peoples—not just people—matters.
To suppose, as does Tooze, that removing national competition from the global economy would somehow increase competition is laughably naive. Can you imagine a biologist arguing that group and kin selection pressures decrease total genetic competition? Of course not. The very thought is asinine—as is the liberal position on free trade.
America’s free traders claim to champion competition while simultaneously crusading to end competition. Meanwhile, they cannot see that China is currently outcompeting them by completely ignoring all their talk of competition. Ironic.