Old Right, Mainstream Left in Alliance Against Trade

American liberals and paleoconservatives don’t often agree. Except when it comes to trade.

America’s Old Right and the Gray Lady from New York aren’t often in agreement except on trade policy. Both see globalization as a zero-sum game in which another nation’s gain is necessary America’s loss.

Conservative columnist Pat Buchanan criticizes his own Republican Party in a recent blog post for championing free trade which, he believes, enables corporations “to shutter plants here, move to Latin America or Asia and produce there. Now they have the right to bring their China made goods back to the United States, duty free and fill the malls of America with those goods.”

The American consumer is certainly a winner in the game of globalization because he can buy cheaper goods. But “there are also losers,” writes Buchanan.

First among them are high-wage American factory workers whose plants are closed when production moves abroad. Next are factory workers who lose their jobs when foreign made goods fill up the malls and the companies they work for, companies that stayed in the USA, go under.

The “predicted and inevitable fruit of globalization,” according to Buchanan, has been the deindustrialization of the United States, “with manufacturing shrinking as a share of gross domestic product to 11 percent, from over 30 percent in 1950.”

Protectionist Republicans like Buchanan find themselves in the unusual company of The New York Times, otherwise a liberal newspaper. In a recent editorial, it rallies against a territorial system of taxation as Hong Kong maintains which only taxes income earned within its borders, not profits made overseas.

The Times fears that “eliminating federal taxes on foreign profits would create a powerful incentive for companies to shift even more jobs and investment overseas — the opposite of what the economy needs.” Indeed, a territorial system would “[reward] companies for offshoring jobs and investments,” it opines.

Proponents of free trade argue that rather than rewarding companies under a territorial tax system, the current structure penalizes them for doing business overseas. That is why it is estimated that more than $1 trillion in American capital is held abroad, money that could otherwise be invested at home. Indeed, “the opposite of what the economy needs.”

As Buchanan, The New York Times isn’t just protectionist but “preservationist” in that it seeks to preserve whatever industries the United States have in favor of risking failure by embracing new ones. But in a free market, preservation is stagnation. Global competition forces companies to almost constantly change production and innovate.

American manufacturing is a case in point. It is true that as a share of gross domestic product, manufacturing in the United States has declined by up to a third in the last twenty years. But real American manufacturing output has increased by more than 80 percent in the same period. The reason is that factory work in the America is increasingly mechanized and highly specialized.

According to the Bureau of Economic Analysis, the market value of manufactured goods, over and above the costs that went into their production, reached a record high in 2007, breaking the record set in 2006, which broke the record set in 2005, which broke the record set in 2004. The recession has affected all industries but the trend is clear — American manufacturing is thriving, even if it employs fewer people.

American workers don’t make clothes and toys anymore. They have moved up the scale, producing chemicals, pharmaceuticals, sophisticated airplane and automobile components and more. All the while, American factories have remained the most productive in the world. As the Chinese and other emerging economies mature, their demand for the sort of labor-intensive and quality products that American factories put out will increase, creating more jobs. Globalization isn’t zero-sum but win-win.

Moreover, the outsourcing of American manufacturing jobs has freed up labor for new, booming industries, particularly energy.

In the northern Appalachian mountain region or “Rust Belt” of America, where most steel mills shut down long ago and the coal workforce has shrunk by 90 percent in the last forty years, energy conglomerates are planning billions of dollars worth of investments to revitalize the natural gas sector and construct new chemical plants. Since the financial panic of 2008, fracking alone has created up to 600,000 new jobs.

If the United States had taken Buchanan’s and The New York Times‘ advice, it should have shut its borders for coal and steel imports in order to preserve the 1950s era industries in the northwest. Other industries would have lacked access to cheaper energy. Fewer companies might have moved overseas but far fewer would almost certainly have been created. Blue collar workers today would have dwelt in the very same industries as their grandfathers in jobs that couldn’t have paid as well as shale industry does today.

A nation can try to shut out the world, bar or heavily regulate trade across its borders and seek self-sufficiency but it cannot prosper if it does. The reality of competition and opportunity will always catch up with the fantasy of autarky.

The United Kingdom tried and failed to preserve its coal mines and heavy industries in the 1970s. The result was a dismal failure in central planning and collectivism that brought the country to the brink of collapse, indeed, over it, for it had to beg financial support from the International Monetary Fund to stave off bankruptcy. Only after Margaret Thatcher liberalized the economy and stopped subsidizing industries that could not on their own compete in a free, global market did Britain prosper again.

It would seem that both on the left and the right, the lessons of Thatcher’s success have already been forgotten.