Even if it was often more wishful thinking than unambiguous reality, it used to be that American economic freedom was a (classical) liberal model that many other world governments hoped to imitate or at least felt obliged to offer excuses for not following. Now, it seems, the situation is clearer: America is becoming a dirigiste model that European politicians and bureaucrats are consciously vying to plagiarize. At least, this is obvious in the matter of international trade.
It must be admitted that it is not the first time the US government has been on the frontlines of protectionism in the “free world.” From the Civil War to Franklin D. Roosevelt (and his “hillbilly free trader” Secretary of State Cordell Hull, as later described by Senator Paul Douglas of Illinois), America had some of the highest tariffs in the developed world. More generally, American trade policy has seesawed between regulated free trade and protectionist regulation. See Douglas Irwin’s extraordinary book Clashing over Commerce and my review in Regulation—for example:
In 1976, by some calculations, the U.S. market was more protected by nontariff barriers than the European Economic Community and Japan, although exports were less subsidized in America.
In the same review, I wrote:
But what is surprising, at least for an amateur student of American history, is the nearly continuous protectionist tendency of the U.S. government from the Founding to the present time and, when free trade was defended, the modesty and prudishness of its defenders. In the early 1830s, Sen. Henry Clay, inventor of the “American [protectionist] system,” stated that “to be free,” trade “should be fair, equal, and reciprocal.” So-called “fair trade” is not a recent invention. More often than not in the 19th century, the benefits of international trade were understood to attach exclusively to exports, like in the old mercantilist thought. There was not much understanding that tariffs are a tax on domestic consumers.
So what’s happening now? Nudged by the French government, the European Union government is building up a set of protectionist legal instruments presented as a response to, and imitation of, restrictive trade actions taken by the administrations of both Donald Trump and Joe Biden. The continuity between the two latest presidents, who would claim to be so different, says something about the dire condition of American politics.
A story in the Financial Times provides examples (Andy Bounds, “France gets its way, thanks to Brexit,” June 6, 2022). We learn that the new protectionist activism in France and at the EU
is partly a response to Donald Trump’s US administration, which slapped tariffs on steel and aluminium on national security grounds.
Even the Defense Production Act (DPA), a remnant of the Korean War that was invoked by Trump at the beginning of the Covid pandemic and which Biden has also used, is the object of envy:
Brussels was finally prompted to toughen its stance last year, when US president Joe Biden invoked the Defense Production Act to restrict exports of vaccine ingredients in the midst of the Covid-19 pandemic. Thierry Breton, the EU’s internal market commissioner, threatened to withhold supplies of vaccines to the US unless it lifted its de facto ban.
He said he needed a similar tool to the DPA — most recently used to increase production of baby formula and airlift supplies from Europe.
An imitation DPA would allow the EU to restrict exports when deemed expedient—which of course means that it will prevent others from importing and stop the efficient sharing of supplies during an emergency:
The French commissioner’s team is now working on a Single Market Emergency Instrument, which would allow export restrictions on five or six categories of goods, such as raw materials, in an emergency.
READER COMMENTS
MarkW
Jun 13 2022 at 4:41pm
Yes, it’s bad out there. American progressives are against free trade because suspicion of any kind of free, ‘unfettered’ economic activity is in their DNA and Trump-style conservatives are against free trade because America First! nationalism/xenophobia is in their DNA. This being a sad, recent example (The Biden admin being bashed for one of the few things it’s actually doing sort-of right — the dropping of tariffs, that is, not invoking the DPA). And yes, of course, this sets an example and creates an opening for the EU to follow suit.
Matthias
Jun 13 2022 at 10:06pm
Amongst all the awful protectionist stuff, subsidising exports is perhaps the least damaging.
I mean, I live in free-trade Singapore, and I wouldn’t mind if the American taxpayer wants to subsidise my imports.
(Still a silly policy, but probably the least bad of the lot. Similarly to how trying to hold the value of your currency down to ostensibly help exports is not as bad as tariffs and quotas.)
Pierre Lemieux
Jun 14 2022 at 8:17pm
Matthias: I understand what your mean and it’s true from the viewpoint of the subsidized–but of course not for the subsidizing taxpayer. Note also that if every government equally subsidized its country’s exports, all subsidies would cancel. What would remain would be the transfers from taxpayers to consumers and the deadweight loss (the loss from more things produced and consumed that their real costs represent). Note also that a consistent nationalist would hate exports, which use “our resources” to produce things for foreigners (my Regulation article “Logic, Economics, and Protectionist Nationalists” elaborates on this).
Jose Pablo
Jun 14 2022 at 11:00pm
What is always surprising to me is that this same “protectionism logic” is (almost) never applied to interstate commerce. Or to “intercity” commerce within a state. Or to “interstreet” commerce within a city.
Following the protectionism logic, when “free commerce” starts to be “bad” and why? (I assume that everybody agrees that my neighbors free trading with the people living in the next street is good for the economy)
Pierre Lemieux
Jun 15 2022 at 5:52pm
Yes, protectionism is collectivist (or at worst tribal): an arbitrarily defined collectivity is supposed to have the right to prohibits its “citizens” to trade with whom they want.
Anders
Jun 18 2022 at 4:54pm
I am in the midst of this, not as much pushing Mazzucatos statism as finding the constraints it needs to do more good than harm. 0th and 3d order, if you will. Locked up and forced to agree, whatever myrdal and hayek, mazzucato and mccloskey could agree on would be much baetter then the formers unfettered. So far, directionality has been misleading at best (Arpanet restricted to defense for a decade), harmful at worst (Nkrumas Ghana), if not evil (pol por and mao had plenty of missions).
Aware of the dangers and the difficulties in practice (what is a mission for social inclusivity, i cant think of a single entrepreneur not contributing to it in some way that is a result of rent seeking or should be illegal. At least if you look at direct and indirect effects on both the consumption and the production side. Lowering co2? A predictable flexible tax that sends clear signals and invests the revenue in basic research to make up for path dependency and of course mitigating short term tradeoffs for the vulnerable to give them the skills they need to adapt…. Had we started in 1990, it is hard to imagine we would burn fossil fuels (oil is of course not a fossil fuel strictly speaking) nowadays, with a few exceptions. Every time we ran out of a resource we found better ones to replace them. Hydrofuel cells, storage, long term transport of energy that in theory could have unharnessed geothermal energy in iceland cater to a whole continent, alt nuclear tech that could burn existing waste and avoid toxic waste and anything you could make a bomb of, wave energy… only a few of those would need to work out. And that is only what a philistine like me came up with in a minute.
I think the case for 2nd order policies to ensure more ideas are tried out across the board is pretty strong. This will incur the wrath of ideologues on this forum, but hear me out: I want you, the Hayekians, to tell us how to experiment broadly while knowing when to stop. You do not get to question the intent of intervention, but you get to decide how to put it into practice.
Chomskey and Hayek locked up until they solve tuition, poverty, and health care. My bet it would be quick. Eitc of the ambitious Nixon variety. Government covers high cost health care only, markets the remaining 80%…. I bet prices for gall bladder surgeries would drop by 90%. And tuition? As a socialist, I abhor the idea of the poor paying for the rich. A state loan paid back as a function of subsequent income would equalise oppurtunities at a fraction of the cost of public spending alone. Dont burden the residents, get to them when they become heart surgeons. My bet is they would not even mind.
The socialism I want is one that makes maximum use of the market to create good for everyone. I want to tell you my goals, I want your solutions, and conservatives like Scalia and Cheney to use their veto powers when any of us go too far, whether it be literal free banking or actual net zero in ten years or assuming every difference is linked to racism and hence justifiably subject to rectification.
my socialism will only work with liberal ideologues like you and actual conservatives. Yet we increasingly see that the ones with the ambitious goals get to decide on means and constraints as well. That is toxic.
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