The Abandonment of Free Trade: Exploring the Reasons Behind it and its Consequences
Introduction
Both major political parties in the United States seem to have abandoned the idea of free trade. This represents a dramatic turning against 70-plus years of efforts to lower trade barriers and increase globalization. In order to understand why this shift has occurred, we must delve into the implementation and marketing of the idea of free trade, rather than blaming the concept itself.
The Origins of Free Trade
The dedication to free trade began in the mid-1930s as a response to the perception that trade barriers had worsened the Great Depression. After World War II, the General Agreement on Tariffs and Trade (GATT) was established as a fallback position, with the goal of promoting peace through trade. However, GATT was politicized from the start, disadvantaging enemies of the dominant power, the United States.
The Rise of Regional Trade Blocs
In the 1990s, the United States solidified its regional trade bloc with NAFTA, which was marketed as free trade but was actually filled with subsidies, carve-outs, and non-tariff barriers. The World Trade Organization (WTO) followed a similar pattern. These new globalist institutions were presented as embodiments of free trade, despite being mechanisms of bureaucratic control.
The Impact of China’s Rise
Since the 1990s, China’s rise has led to a significant upheaval in the US manufacturing base. Textiles and steel industries have moved overseas, leaving behind ghost towns and abandoned facilities. While defenders of free trade argue that this is a natural consequence of globalization, there are other underlying problems at play.
The Fiat Money System and China’s Expansion
The shift from a gold standard to a fiat money system in 1971 allowed central banks to print unlimited amounts of money, leading to credit expansion and debt accumulation. China took advantage of this system, accumulating US debt instruments and pouring the funds into its own producer infrastructure. This undermined local production in the United States and resulted in a loss of purchasing power for American consumers.
The Role of Sound Money in Free Trade
The classical economists such as David Hume, Adam Smith, David Ricardo, and Frédéric Bastiat advocated for free trade based on sound money grounded in gold. Under this system, trade imbalances would be self-correcting through the price-specie flow mechanism. However, the abandonment of the gold standard in the 20th century disrupted this mechanism, leading to distorted trade patterns.
The Failure of Trade Agreements
Huge trade agreements like NAFTA, the EU, and the WTO were marketed as free trade but were actually heavily bureaucratized and managed trade. Their failure cannot be solely attributed to free trade itself but rather to their corporatist substance and bureaucratic nature.
The Fallacy of Tariffs as a Solution
While tariffs may seem like a viable solution to address trade imbalances, they actually operate as a tax on domestic production and consumption. They can lead to conflicts and breakdowns in diplomacy. It is important to recognize that the problem lies not with free trade itself but with the flawed implementation and marketing of the concept.
Taking Back Control for the People
The core issue lies in the quality and control of the money system. It needs to be taken back for the people, away from governments and central banks. Fixing this system will not be easy, but it is crucial to ensure that all forms of freedom, including the freedom to trade, are preserved for businesses and their customers.
Conclusion
The abandonment of free trade by major political parties in the United States is not a result of inherent flaws in the concept itself but rather a consequence of flawed implementation and marketing. The rise of regional trade blocs, China’s expansion fueled by fiat money, and the failure of trade agreements have all contributed to the current state of affairs. It is essential to address the underlying issues and take back control of the money system in order to restore the true essence of free trade.
