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The New Demon

In his new book, ominously titled The Great Betrayal, Patrick Buchanan seeks to show that the economic difficulties and anxieties faced by working Americans today, including large parts of the middle class, are the result of free trade and the pressures of open competition in the world economy. More broadly, Mr. Buchanan argues that the progressive elimination of tariffs and other barriers to foreign trade during the post-World War II era is the chief force responsible for a great many of our nation’s economic and social ills. The villains in his story—his book is as much about the politics of blame as the economics of practical solutions—are the “transnational elites” and the politicians who do their bidding. His answer is protectionism, particularly in the form of new tariffs on goods produced by low-paid foreign labor.

Mr. Buchanan’s argument is worth attention not only for its own claims but because in one form or another, albeit usually without any of his specific protectionist proposals, opposition to free trade is shared in the United States by at least some prominent politicians in both parties as well as by many labor leaders and businessmen. Last November Congress balked at giving President Clinton the “fast-track” authority he had requested to negotiate a new round of multilateral reductions in tariffs and other impediments to the free flow of goods across national borders. Democratic Minority Leader Richard Gephart, who has long expressed reservations about free trade, opposed the President in this debate, and enough Republican congressmen likewise rejected their own party’s leaders (who supported the fast-track legislation) that Mr. Clinton had to withdraw his request before it came to an up-or-down vote.

In the same vein Ross Perot is far from the only politician, or the only businessman, to make opposition to the North American Free Trade Agreement into a rallying cry for opposition to free trade more generally. Mr. Buchanan also approvingly quotes both the longtime AFL-CIO president George Meany and his current successor, John Sweeney, on the unfair competition that amounts to “a stacked deck, stacked against the American worker.”

As we shall see, Mr. Buchanan’s argument is, at bottom, about more than free trade. Although he goes to great lengths to portray it as an attack on big government, his real complaint is against laissez-faire free enterprise, and his proposals for higher tariffs and other new trade barriers are openly interventionist. And while, not surprisingly, he seizes opportunities to portray Democrats (including Mr. Clinton) as at fault, he is also forthright in naming Republicans whom he sees as defenders of the free trade disease that is sapping America’s strength.

Wholly apart from whether free trade is actually at their root, the problems that Mr. Buchanan is concerned about are certainly real enough. Over the past quarter-century most Americans’ wages have failed to keep up with inflation, and most families’ incomes have remained stagnant despite the increase in two-earner households. The average full-time worker in US business now makes $440 per week. Twenty-five years ago the average worker made $517 a week in today’s dollars. In 1996 (the latest available data), the median family income in the United States was $42,300. A decade ago, in comparable dollars, it was $42,700. Even twenty-five years ago, it was already fully $40,100, just 5 percent less than in 1996. Little wonder that so many Americans have lost their sense of getting ahead, and that so many parents now fear for their children’s financial future.

Such trends, and the human difficulties they create, have been especially acute among the industrial workers who are the particular object of Mr. Buchanan’s concern. These men and women usually graduate from high school but not from college. Many of them used to work on assembly lines and in foundries but no longer do so. For the first time since the Industrial Revolution, the number of jobs in US manufacturing is declining. Today only 18.8 million Americans (out of 126 million at work) have manufacturing jobs. Twenty-five years ago there were 20.2 million such jobs (out of just 77 million overall). Since manufacturing firms traditionally provided higher wages and more generous benefits, it is easy to understand all the talk about the absence of “good jobs” despite today’s remarkably low unemployment rate.

Moreover, as Mr. Buchanan emphasizes, incomes in America have also become dramatically unequal. Families who scrimp to buy $12 bleacher seats at the ball park, and know they can’t afford $30 each for “cheap” tickets for a basketball game, read daily about the players’ seven- or even eight-figure salaries. Corporate employees who consider themselves lucky to have jobs that give increases of a percent or two beyond the cost of living know that their firms’ top executives are making millions in salary and further tens of millions on stock options. Each new merger eliminates more of the jobs of people who earn $20,000 to $50,000 and leaves more CEOs worth $20 million to $50 million.

These and other recent developments in American society (for example, widespread drug addiction) that Mr. Buchanan laments are certainly disheartening—indeed, in some cases they are appalling and infuriating. But the question is whether free trade and global competition are their root cause. And the question that follows, for practical purposes, is not whether steps should be taken to deal with these problems but whether a return to protectionism is the right step to take.

The truth of the matter is that the stagnating wages and widening inequalities that now afflict much of the American work force have not one cause but many, and no one knows how much weight to give each of the diverse factors that, taken together, are plausibly responsible. Rapid changes in technology are eliminating some jobs but at the same time creating new ones, even whole new industries, and are also rendering some workers’ skills and training obsolete while placing a premium on what others know how to do. Changes in the organization of already mature industries, typically through consolidation, as with banking and retailing, likewise create hardships for some but opportunities for others.

The inadequacy of US businesses’ investment, which has only recently begun to revive now that the large government deficits of the Reagan-Bush era have dwindled and disappeared, has constrained increases in productivity and hence in wages. (If US investment in new factories and machinery had not shrunk so much as a share of our national income in the 1980s, the number of jobs in our manufacturing industries would not be so diminished today.) So too has productivity been limited by the widely discussed deficiencies of America’s primary and secondary education systems. And especially for workers with little education, immigration policies that often favor unskilled over skilled new arrivals have held down already low wages.

No doubt the rising force of global competition belongs on this list too. But is such competition the main cause of America’s stagnating wages and widening inequalities?

Mr. Buchanan claims it is, although he ducks the challenge of making a direct case for global competition as against other familiar potential causes of workers’ current plight. He recalls the experience of several firms that have either closed down under foreign competition or moved their factories abroad; he describes in some detail the American automobile industry’s loss of a sizable chunk of its home market to Japanese and other car makers. But he makes no effort to estimate the total extent of either the production or the jobs lost in this way. And he ignores altogether any expansion among US firms that are successful exporters. (A reader of Mr. Buchanan’s book would not guess that US exports of manufactured goods, adjusted for inflation, have almost tripled over the last ten years, and have grown by 30 percent over just the past two years.) He publishes charts showing that US economic performance has in some respects deteriorated since the beginning of the “free trade era,” which he dates to the conclusion of the Kennedy Round of negotiated tariff reductions in 1967. But lower tariffs are only one among many factors that distinguish the last three decades from what went before, and he makes no attempt to sort out what is responsible for what.

Instead, the heart of Mr. Buchanan’s book consists of a forceful series of arguments to the effect that tariff protection should be beneficial, while free trade should be harmful, to a nation’s economy and the broader society that it serves. Although much of this ground is familiar, Mr. Buchanan brings it to life by placing these protectionist arguments within the larger setting of American political history. While parts of his historical account are one-sided—for example, he omits the role of immigration and foreign investment in bringing about the strong US economic growth of the nineteenth century—he is surely correct that through much of the nineteenth century the United States was among the world’s most protectionist countries, and that such great American figures as Hamilton, Lincoln, Theodore Roosevelt, and even Jefferson in his later years were convinced protectionists.

Five distinct arguments for tariff protection appear and reappear throughout Mr. Buchanan’s book:

  1. Military preparedness. Even Adam Smith accepted the need to produce at home the military supplies that it would be disastrous for a country to have to do without in the emergency of an armed conflict. Mr. Buchanan appeals to this argument repeatedly, and even offers several striking examples of America’s current dependence on imports for key military needs, such as the computer systems that operate F-16 and F/A-18 aircraft and even M-1 tanks. (He likewise notes that “foreigners today control the US companies responsible for the heat shield of the D-5 Trident missile and the flight controls of the B-2 bomber, the F-117 stealth, and the F-22, the backbone of the twenty-first-century air force.”) But he is curiously vague about suggesting a different policy to this end. Similarly, although he makes much of the vulnerability of our relying on foreign sources for more than half of our oil, as we did before the OPEC price hikes in the 1970s, he offers no specific suggestion for remedying this situation. (He presumably doesn’t favor higher gas taxes, for example.)

  2. Infant” industries. Another classic argument for tariffs, associated in America with Alexander Hamilton, is that newly developing industries often need protection before they can hold their own against foreign competitors that have had a big head start. A modern variant of this argument, put forward by prominent economists including MIT’s Paul Krugman, my Harvard colleague Elhanan Helpman, and Princeton’s Gene Grossman, is that some industries can produce efficiently only if they deal in large volume, so that firms need to grow to a certain size before they are able to compete. Mr. Buchanan makes these arguments in his book, but what is consistently missing in his account is the idea that once industries develop sufficiently, they should no longer need protection. Mr. Buchanan wants his tariffs to be permanent.

  3. Tariffs as a bargaining chip. Nobody denies that the US would be better off if other countries did not impose tariffs on their imports of our products. As a tactical device, therefore, some people suggest that we impose our own tariffs against countries that most heavily tax our goods, in the hope that we can then negotiate a mutual reduction. Mr. Buchanan proposes to single out Japan in this way, calling for an extra tariff on Japanese autos and auto parts. But here, too, he seems to envision such special tariffs as permanent. He does not favor the idea of tariffs as a bargaining chip to help negotiate freer trade, mostly because he does not want trade to be freer.

  4. Free trade and “special interests.” John Stuart Mill, in his Considerations on Representative Government, embraced laissez-faire principles, including free trade, in part out of concern that if the government were to interfere in commercial affairs the inevitable lobbying by monied interests would corrupt the underlying democracy. Mr. Buchanan turns Mill’s argument upside down by claiming that free trade fosters lobbying and corruption, while under protectionism businesses would have no need to press their special interests. He is certainly right that the form of quasi free trade we enjoy today has not blunted the force of special business interests in politics. Few firms seek outright tariff protection these days, but many try to have the government impose rules and regulations that put their foreign competitors at a disadvantage. In some cases the methods by which they do so, such as campaign contributions that are obviously tied to politicians’ intervention in their behalf, are indeed corrupt. But Mr. Buchanan’s assumption that all this would end once a new tariff were in place seems at best naive.

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