George W. Bush, Protectionist
“I’ve abandoned free-market principles to save the free-market system,” President Bush told CNN, defending his offer of $17 billion in loans to the Big Three “to make sure the economy doesn’t collapse.”
Thus did Bush concede that protectionism, if a critical U.S. industry is in peril, must trump free-trade ideology. For in offering the bailout to GM, Ford and Chrysler, Bush, by omission, excluded BMW, Mercedes, Honda, Toyota, Nissan and Hyundai — though all operate auto plants here in the United States and all are feeling the same sales slump.
Indeed, Toyota claims losses for the first time in 70 years — though how Toyota’s management was able to keep sales up in 1945, when Gen. Curtis LeMay’s B-29s were conducting their nightly visits, escapes me.
Bush may believe he has sinned against free-market principles, but he is following the path of his great free-market predecessor. Ronald Reagan, too, was not prepared to see Japan take down the U.S. auto industry, or steel industry, or computer chip industry, or Harley-Davidson.
Believing Japan was dumping to destroy U.S. companies, Reagan put patriotism before ideology and imposed quotas on Japanese imports. He, too, was castigated by the same commentariat that is berating Bush.
Vice President Cheney, too, has endorsed the bailout of Detroit. Of the senators who voted to pull the plug on General Motors, Cheney is said to have remarked, “It’s Herbert Hoover time” up there in the GOP caucus.
Averting Chapter 11 for GM, which could lead to liquidation of the greatest manufacturing company in U.S. history — cutting America out of the premier consumer market of the 21st century — makes sense not only from the standpoint of politics, but economics, as well.
For other nations, as the Washington Post reports, are far ahead of Bush in sheltering their industries and protecting their markets:
Moving to shield battered domestic manufacturers from foreign imports, Indonesia is slapping restrictions on at least 500 products this month, demanding special licenses and new fees on imports. Russia is hiking tariffs on imported cars, poultry and pork. France is launching a state fund to protect French companies from foreign takeovers. Officials in Argentina and Brazil are seeking to raise tariffs on products, from imported wine and textiles to leather goods and peaches, according to the World Trade Organization.
India has levied a 20 percent duty on soybeans to cut imports and protect her farmers.
The United States has just filed charges with the World Trade Organization against China for “unfair support of its export industry — including the award of cash grants, rebates and preferential loans to exporters.”
Awfully late in the game, Bush seems to have awakened to an ancient reality. When the tough times come, nations protect their own interests first, free trade be damned.
“Country first,” as the John McCain slogan ran.
Libertarians of the Milton Friedman school may be unforgiving of Bush. But what has their free-trade globalism given us, but $5 trillion in trade deficits since Bush 1 and a new dependency on foreigners for the necessities of our national life and the loans to pay for them?
Were all the Playstations and Priuses worth it?
By traditional free-trade theory, a nation should import what it does not produce from the nations that produce it most cheaply.
But in 1946, Japan produced almost no steel, no TVs and no cars. Instead of buying them from America, Tokyo subsidized its own steel, TV and auto industries for decades, and protected their market. Now, as Sony did to Philco and Dumont, Toyota, Honda, and Nissan are taking down Ford, GM and Chrysler. Were the Japanese foolish to subsidize their industries and protect their market? Were we wise to let our TV industry be taken down, and watch our auto and steel industries driven to death’s door?
To 1970, Boeing, Lockheed and McDonnell Douglas produced almost all of the world’s jetliners. But rather than rely in perpetuity on Americans for passenger planes, Britain, France, Germany and Spain subsidized a socialist cartel, Airbus, that did not make a profit for 25 years and sold its planes for less than it cost to build them.
That trampled all over free-trade theory, but it did kill Lockheed and McDonnell Douglas and almost killed Boeing.
Were the Europeans foolish to create an aircraft industry and subsidize the destruction of Lockheed and McDonnell Douglas? Or were they wise to sacrifice today to capture the world’s aircraft market of tomorrow?
Like Prohibition in Hoover’s phrase, globalism is “an experiment, noble in purpose, that has failed.”
As we have learned, at a cost of $10 trillion in wealth wiped out on Wall Street, the nations of the future are not the consumer nations that pile up debt as they live on imports, but the producer nations that save and sacrifice and make the things the world wants.
With the tax-and-trade policies of the Old Republican Party that made America first by putting Americans first, we can be that nation again.
As for President Bush, welcome to the Protectionists Club, sir.
COPYRIGHT 2008 CREATORS SYNDICATE INC.
“I’ve abandoned free-market principles to save the free-market system,”
Kinda like he shredded the constitution to “protect our freedoms”?
Bush did not save the Free-Market system–in the industries that have collapsed or on the verge of doing so, there was little free market to save. He is attempting to save the economic status quo that he and his ilk fraudulently label a “free-market” which in many ways was more socialist than “communist” China’s economy before the current turmoil, and now, most assuredly so.
Pat forgets that even government intervention to encourage capitalistic growth still screws with incentives and results in imbalances that lead to havoc. Subverting the disciplinary function of Risk and doling out credit like it was candy on Halloween without a care in hell, precipitated this crisis. No one is defending it now, but only a few complained about it at the time–the real “free-market ideologues” to whom nobody ever listens when it counts, but end up serving as good whipping boys when socialism for rich or poor, couched in libertarian rhetoric, (“supply side” fiscal policy or the “ownership society”) fails to deliver.
Free market means “hands-off” except to prosecute crimes against persons and property. The idea is that self-interested people, with competing impulses of greed and fear, will individually pursue personal gain which, (in a just legal system) can only be achieved through mutual gain which will result in collective gain.
More than anything else, fear of personal loss regulates behavior, and encourages prudence. This system has worked pretty well when it’s been allowed by states to function properly. Interference of the kind that leads to endemic moral hazard, as we’ve seen become prevalent, fouls up the whole works.
Pat is absolutely correct in saying that free-market assumptions should not be made when free-market conditions are not met. I just don’t understand why he thinks we should compound the error by becoming less free. This may be the natural orientation of the political class, but it’s not something to aspire to.
Most “market failures” are in fact failures of governments and planners to steer markets toward a set of subjectively preferred outcomes. Ironically, we are finally getting affordable housing, despite the government’s efforts over the past decade+, which had the opposite intended effect.
Pat can castigate advocates of laissez faire as ideologues, out of touch with real-world considerations have a point. But he cannot turn around to portray authoritarian economic nationalism as a saving grace of struggling economies. Being a student of history, he should know full well the horrible impoverishment caused by the the devaluation and trade conflicts of the early part of the last century that necessitated Bretton Woods.
This may be difficult for nationalists like Pat to accept, but the very things he’s lauding in this article are all examples of the State attacking it’s citizens’ economic liberty and well-being. Stacking the deck in your native industry’s favor with coercive intervention works well as long as other countries are unwilling or unable to retaliate.
But protectionism is bad economics and bad for a free society–always. It may be an intractable feature of modern statist politics (is there any politics that isn’t statist nowadays?) but that doesn’t mean it shouldn’t be resisted as misguided and ultimately destructive to the citizens of nations engaged in nationalist policies.
Jordan wrote:
“But protectionism is bad economics and bad for a free society–always.”
Jordan:
I’m not sure I understand what you were saying in the rest of your post but at least as to this quoted sentiment it seems to me that if fails at some point like most if not all blanket generalizations.
Country A believes in free-market economics and free trade. Country B doesn’t, and in various ways subsidizes this or that or all of its economic enterprises which do business in Country A. And, moreover, Country B erects and maintains barriers to foreign competition in its own economy.
Yet you say it’s “bad economics and bad—always”—for Country A to then take protective action for its own enterprises in the face of that kind of competition?
True, it may be nice for the consumers of Country A to get the subsidized lower prices offered by the subsidized enterprises of Country B. For awhile. Until they drive the domestic enterprises of Country A out of business and then, free of that competition, they raise their prices.
And it’s certainly not nice at all even for awhile for the workers in Country A’s enterprises whose products now have to compete with the subsidized products from Country B. Nor is it nice when Country A’s workers can’t get their products sold fairly in Country B.
I understand how someone might say that the foregoing has not been the situation, or has not been the situation to a significant degree. But on the theoretical level at least it seems to me that if indeed faced with the foregoing situation, protectionism on the part of Country A most certainly is not bad economics, nor on balance bad for it as a free society either.
I think Pat called this one wrong.
It is true that US industry, in general, labors under burdens not matched by foreign industry. Enviro, safety, health/retirement, and in the case of automotives, burdensome union contracts.
But there’s a big difference in the case at hand–which difference was caused by Ron Reagan. Reagan forced the Japanese automakers to build plants in the US in order to sell cars without stringent tariffs.
They did so, and those US plants are subject to the same enviro, safety, and health protocols as are the Big3. That’s the genesis of the “content” requirements, remember?
But the Japanese did NOT have to be organized by the UAW, thus not submitting to the egregiously onerous ‘work rules,’ SUB-pay, and “get paid not to work waiting rooms” terms of the UAW contract(s). The Japanese are also manage extremely well; they utilize every trick in the ‘how to manufacture’ book–not a hallmark of the Big3; the Japanese are, further, not burdened with enormous white-collar overhead (compare to Big3 any day…)
Clearly, US industry cannot compete with (foreign) industries which are granted huge export subsidies, and are beneficiaries of currency-manipulation, not to mention un-burdened by enviro and safety regulations (and income taxes.) They are also unable to compete with foreign industry which steals intellectual property.
A rational Fair Trade policy recognizes Governmental burdens (and benefits afforded by competing nations) and establishes tariffs to compensate for them.
But a rational Fair Trade policy does not compensate for stupid managerial decisions, nor for overly-generous union contracts. It cannot, for in the end, stupidity and greed must fall.
The Harley-Davidson example is very clear. Harley did get relief from “dumping,” which was enabled by Japan’s government through subsidies. But Harley ALSO re-negotiated its union contracts, cleaned out a hatload of incompetent (and, frankly, corrupt) management, and has studied and used ‘best practice’ manufacturing techniques. Ignoring the changes Harley made and talking only about Reagan’s initial move is not very honest.
Protecting American jobs is not the same as protecting the UAW or the Big3 from their excesses.
PJB’s instincts are correct, but his endorsement of the Bush “solution” is flawed.
When goods cannot cross borders, armies will.
I said:
“Pat is absolutely correct in saying that free-market assumptions should not be made when free-market conditions are not met.”
I acknowledge that trade is complicated and mired in imbalances. However, you need to draw a line between real comparative advantages that lead to the most efficient use of scarce resources, and non-market advantages derived from govt. intervention. Interventions arbitrarily distort efficient calculation of opportunity cost, as you know.
Like all forms of coercive redistribution, protectionism benefits the few at the expense of the many. This must be the case, being that it’s non-consensual. In this sense, discounting borders and politics–thinking only of people wishing to improve their standard of living, it is always unfortunate.
Appropos of protectionism Jordan said:
“it is always unfortunate.”
Ah, I understand what you’re saying now, but I do think it’s at least a little different than saying protectionism is “bad”—”bad always”—as you had said before.
In any event what struck me about Pat’s post and indeed so much of the talk about our economic affairs now is the feel they impart of maybe being utterly irrelevant to the new world in light of what’s happened. I.e., it can seem that with these bailouts and government take-overs and the simply staggering amount of debt being incurred due to same (not to mention all of what might yet come) that it might just be that the terms and bounds of our economic debate are going to be almost totally different than they’ve been before.
Such as maybe … since the gov’t might now has a big-share in the auto industry this will just free up foreign countries to do ever more for their auto companies, and therefore of *course* the U.S. is gonna play protectionist against htis since its own chestnuts are now in the fire. So goodbye the old bounds of the old “fair trade” debate? In other sectors too? Why not? Or what about the gov’t stepping in to take over *any* big economic actor in the future, no matter how well the economy is doing otherwise? Why not? And at what point can the government no longer “prime the pump” with deficit spending because every additional dollar the gov’t spends only *decreases* consumer confidence that our system is sound?
Just as in a socialist country “inflation” is usually experienced differently than in a capitalist system (as shortages usually), I wonder if in the long run we haven’t started down the path of so radically changing our system that in an almost mechanical way things are just going to work very differently in the future.
Understandably, everybody is looking at the past and trying to figure out how we got here and etc. and so forth, and that’s fine. But it’s at least equally interesting and maybe hugely more important too to get an idea of what the future holds now, and nobody but nobody seems to have much of an idea. Will the gov’t gradually withdraw from the system? Or will it take more so as to protect the investment in same it has now made? And so on and so forth….
Bush accepted the GOP Senators’ version of the bail out in principle, if not in the detail. In that light, Cheney’s sneer about “Herbert Hoover time” seems a bit silly. As Corker had wanted, the automakers and the union are supposed to end wage and work rule disparities according to the plan’s “targets” within 2009. Officially, it’s non-binding, but politically, if some progress isn’t made on that front, GM and Chrysler will have a tough sell in March if they come back with their begging bowls again, even with the new administration and Congress.