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How Free Trade Is Killing Middle America

“We’ve outsourced our manufacturing and much of our pollution, but some of it is blowing back across the Pacific to haunt us.”

So says University of California scientist Steve Davis. Smog from Chinese factories has already saturated cities like Beijing, where residents go about in surgical masks, and crossed the East China Sea to foul the air of Korea and Japan. Now China’s smog is coming to America’s West.

Among the pollutants wafting their way over the Pacific, says the Guardian, is black carbon, which is “linked to cancer, emphysema and heart and lung diseases,” and travels “huge distances on global winds known as ‘westerlies.'” Davis is one of a team of U.S. and Chinese researchers whose report has been published by the U.S. National Academy of Sciences. As the Chinese factories fouling Asia’s air arose to meet the demands of Western consumers, says Beijing, the West should help pay the cost of cleaning up their polluted and poisoned environment.

Seems that, despite the academic consensus that free trade is win-win for all, free trade is not free.

Great nations that have risen to global power by protecting their manufacturing, like Britain in the early 19th century, have begun their relative decline when they embraced free trade. Between 1870 and 1914, protectionist America and Germany both shoved Britain aside.

Since Y2K, China, which protects its industrial base by keeping its currency artificially cheap, has surged past Italy, Britain, France, Germany, and Japan to become the world’s second largest economy. And they are gaining steadily on us. Free trade appears to be the policy of fading nations.

Perhaps it is time for a profit and loss statement of its costs and benefits. Undeniably, free trade has been a bonanza for the top 1 percent and many among our top 10 percent. As U.S. manufacturers shut down scores of thousands of U.S. factories to finance new plants in Asia, their production costs plummeted. Wages and benefits for Asians were, and are still, but a fraction of those of American workers.

Health, safety, and environmental standards were in some cases almost nonexistent. The eight-story garment factory in Bangladesh that collapsed in April, killing 1,100 workers, mostly women, and injuring another 2,500, would never have passed a U.S. building inspection.


After having shifted production overseas and dramatically lowered costs, U.S. transnationals saw a surge in profits. These were used to push corporate salaries into the stratosphere, increase dividends to shareholders, and keep the Washington lobbyists working the Hill day and night for fast track and free trade. And the lifestyle of our corporate elites changed. Where their fathers walked sooty factory floors in smokestack towns in World War II, these masters of the universe fly Gulfstream Vs to Davos and Dubai to dine with titled Europeans, Saudi princes and Chinese billionaires.

These are America’s winners from free trade. The losers? Middle Americans. The average U.S. family has not seen a rise in real wages in 40 years. This is directly traceable to the loss of more than one-third of all U.S. manufacturing jobs. And that loss, that deindustrialization of America, is directly tied to the $10 trillion in trade deficits since Bush I. Writers who celebrate how U.S. imports have risen in this month or that year almost never mention the trade deficit for this month or that year. Perhaps that is because the United States has not run a trade surplus in four decades, whereas, in the first 70 years of the 20th century, we never ran a trade deficit. Trade surpluses add to GDP; trade deficits subtract from GDP.

And when in a company town the company closes the factory, the town often dies. And all the little satellite businesses—bars, diners, food stores, pharmacies—that rose around the factory, they die, too. The tombstones of countless dead towns across America should read: Killed by Free Trade. Tenured economists on college campuses call this “creative destruction.”

The stagnant wages of two generations of U.S. workers also help to explain the crisis of Social Security and Medicare. For, as workers’ wages fail to rise, or fall, so, too, do their contributions in payroll taxes. If, as Simpson-Bowles contends, our largest entitlement programs are heading for insolvency, free trade played a lead role in that American tragedy. And where is the liberal morality in passing laws to ensure U.S. workers a living wage and clean and safe conditions, and then, through fast track and free trade, signaling their bosses that they can evade these laws by shutting factories here, moving their plants to Asia, paying coolie wages, and subjecting Asian workers to conditions that would earn a U.S. industrialist a tour in Leavenworth?

Whatever happens from free trade is what should happen, free traders say. As Dr. Pangloss explained to Candide, whatever happens, happens for the best in this best of all possible worlds.


Patrick J. Buchanan is the author of “Suicide of a Superpower: Will America Survive to 2025? [1]” Copyright 2013 Creators.com [2].

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#1 Comment By libertarian jerry On January 24, 2014 @ 1:15 am

Interesting article Pat. However,your comments about free trade causing “the average U.S. family not seeing a rise in real wages in 40 years” can be traced,not to free trade but to the growth of government on all levels in America especially the Welfare/Warfare State on the national level. Try tracing the transfer of wealth through taxation,borrowing and money printing (inflation) from productive uses to political uses. Basically the shift in wealth,not to the top 10% (who pay most of the Income Taxes),but from the productive Economic Class to the non productive Political Class. When you have a society where almost 2/3 of the population lives off of the production of a shrinking 1/3 of the population then that society is doomed to a lower overall standard of living and eventually national bankruptcy. What is the average American to do when,because of limited resources caused by wealth transfers to the Political Class,he or she is supposed to balance their “take home pay” budget on whats left over? This can only be done by buying products as cheaply as possible. This reason,more then any other, is the real cause of the drop in America’s standard of living. Ask yourself why most government employees make almost 40% more than private sector employees doing the same work? Why the welfare recipients living standards have grown to the point where it just doesn’t pay to work at a job in the private sector. In essence,if your productive your penalized if you live off of the productive your rewarded. Alas,the “progressive” chickens have come home to roost. For this reason,more than “off-shoring,” is the reason why America’s productive middle class is disappearing.

#2 Comment By Fran Macadam On January 24, 2014 @ 1:22 am

The best of all possible worlds, if you are on a private jet enroute to Davos. Whatever is, is the way it ought to be. Such self-justifying claims can be easily made for any planned great evil that occurs, as long as you are not the victim, but the beneficiary of the crime. “Creative destruction” is simply a self-indulgent and self-serving oxymoron.

Pat makes his usual historical point – so-called Free Trade ruined England’s worker and middle class prosperity in the second half of the 19th century, with just the same beneficiaries as today – the banking and investment classes. Moreover, the height of the British Empire and colonial oppression reached their apex during this period. Disraeli, a conservative, prophetically warned against it, prescient about its inevitable results, to no avail. At first, the flood of cheap foreign goods seemed to raise living standards, but then British wages fell drastically and unemployment rose precipitously. By the time he came to power, proven correct, Disraeli was faced with a formidable economic wreckage, with no quick fix possible. Imperialism then, as now, does not originate by design of government, but with financial elites with foreign holdings oppressing other peoples in their own lands. To protect private interest by the public purse, elites by purchase of government policy then have it force ordinary citizens to provide the blood and treasure to defend their own profits, socializing the losses while privatizing the benefits. Then as now, the children of those driven to the financial margins by the “laissez faire” of the monopolistic financial oligarchies become those reduced to try to earn their paltry incomes by serving those elites as cannon fodder.

To paraphrase H. Ross Perot, for most of the American people, this really sucks.

#3 Comment By John Morrison On January 24, 2014 @ 6:34 am

Not a word from the US Conference of cowardly Bishops.Love thy neighbor ,open borders, silence on the Military industrial complex war mongers, the fed money changer counterfeiters.Orwell you are right .See Matthew XXIV,Luke XXI, Apocalypse XX

#4 Comment By Puller58 On January 24, 2014 @ 7:32 am

Congress bows to the donor class. (The Tea Party’s antics have only served to open the door to the fringe grifters who are trying to line their pockets. Terrific example of the foolishness from that crowd is Rep. Steve Stockman who has disappeared since his fundraising hijinks are being investigated. No show for votes? No problem.) The rest of the GOP and the Blue Dog Dems are quite happen to take the money and let the robber barons run.

#5 Comment By Escher On January 24, 2014 @ 7:51 am

The bill for all that low priced junk at Walmart is showing up.

#6 Comment By Frank Stain On January 24, 2014 @ 8:58 am

Fair enough, but it’s about time you took on the biggest lie of them all. Free trade is not only not free in the sense that it has a cost in wages, jobs, and lives (Bangladesh). It is also not free in that it is, well, not free. The so-called trans-pacific ‘free trade’ agreement, for example, is all about increasing the barriers to free trade by strengthening patent and copyright protections so drug companies and others can make secure, competition-free profits far into the future. ‘Free trade’ has never been about nations freely trading goods with each others. It has established competition between wage earners in different countries by setting up offshore production. However, the wealthy, such as doctors and lawyers, have been more or less protected from this competition because their professional associations (viz. unions) are politically powerful and able to restrict access to their profession and foreign competition. There are lots of doctors in the top 1% not because doctors are super-duper smart and high-skilled, but because they are politically powerful. Generally, that’s how it works.
‘Free trade’ was not about free trade, but really about putting severe economic pressure on wage earners so that they learn to make do with less. Together with the political evisceration of trade unions which had once assured wage earners a share in collective prosperity, this has meant that wage earners have been under severe political and economic assault for forty years.

Libertarian Jerry: ‘Basically the shift in wealth,not to the top 10% (who pay most of the Income Taxes),but from the productive Economic Class to the non productive Political Class’

Here is a breakdown of the occupations of the 1%

How many of them are in the ‘political class’?

#7 Comment By WorkingClass On January 24, 2014 @ 9:35 am

Pat Buchanan and Ralph Nader agree regarding the evils of “free” trade. It’s not about left or right. It’s about telling the truth.

Libertarian Jerry. Factory workers are makers. Global monopolists are takers. The later destroy the former by means of “free” trade and open borders but especially by Central Banking. It is dollars not votes that decide government policies and laws. The takers give us war and welfare and take away our work and wages.

#8 Comment By TomB On January 24, 2014 @ 9:43 am

There’s nothing so showing the superficiality that’s now arisen to the level of sickeningness on the part of our Establishment, incestuous main-stream media and commentariat as someone like Pat writing something like this.

As tectonic in importance as it is, to have what’s happened to us economically to be so fixedly ignored by that media and commentariat is just a wonder to behold.

Just how remote and/or corrupt can it get anyway?

#9 Comment By LauraNo On January 24, 2014 @ 10:19 am

I guess the average person’s fate is to become as poor as the serfs were, as dependent on the rich and powerful, as vulnerable to the whims of their lord. When things become bad enough, another revolution will be staged and the cycle will begin again. A new Enlightenment, a new rising middle class; when everyone is fairly comfortable once again the elites will proceed to take it away again, setting up the next revolution…
Each one of them wants as much as they can gather and purloin, with no regard to what happens when their group has taken it all.

#10 Comment By K. W. Jeter On January 24, 2014 @ 10:37 am

Predictably, someone such as “libertarian jerry” (no surprise there) mistakes the effect for the cause. When you dismantle a country’s manufacturing economy, as has been done here in the US, of course you’re going to see more dependency on the government. The “political class” that libertarian jerry bewails would be happily and independently providing for themselves in a sound protectionist economy, just as their fathers and grandfathers did before we foolishly embraced so-called free trade.

#11 Comment By Tom Piatak On January 24, 2014 @ 10:44 am

An excellent column.

#12 Comment By collin On January 24, 2014 @ 10:45 am


What broke the back of unions in the US in 19070s and 1980s? While we can discuss Reagan’s policies here but long term union power continued to diminish during the Clinton 1990s as well. It was the Japanese Inc. that competitively pushed back union power.

#13 Comment By Sheldon On January 24, 2014 @ 10:53 am

How libertarian jerry can continue to spout this nonsense is beyond me. EVERY single study of income distribution in this country shows that the income of the top 1% has increased almost exponentially, while the lower levels have stagnated or declined. Some redistribution! And the profitability at the top of the food chain is related directly to the laissez-faire practices Pat is describing. One can go on and on, but to suggest that “almost 2/3 of the population lives off of the production of a shrinking 1/3 of the population” – a number exceeding even Romney’s 47% canard – bespeaks a detachment from reality found elsewhere only in Ayn Rand at her most turgid.

#14 Comment By Johann On January 24, 2014 @ 11:33 am

This is where I depart from Mr. Buchanan. Truly free trade does not cause income disparity and does not impoverish a nation. Quite the contrary. Protectionism, for example, Argentina’s restrictions on export of wheat, is what impoverishes a nation. They do it to themselves.

Free trade does not require formal agreements like NAFTA. NAFTA, for example, is NOT free trade. True free trade requires no agreement at all. True free trade broadens competition and improves products.

Buchanan brings up Britain. What about their absurd corn laws in the early 19th century? They were laws preventing food imports into the country, even when people were starving!

#15 Comment By Philo Vaihinger On January 24, 2014 @ 12:38 pm

Goodonya, Pat. Sad that nobody listens to your views on trade, immigration, and the danger we face owing to our vast and unaffordable network of entangling alliances.

#16 Comment By Hooly On January 24, 2014 @ 1:12 pm

Pat, you’re beating a dead horse at this point. We get it, you’re against free trade. I’m not against free trade, it comes down to freedom for me. Gov’t should not be regulating who, what and where I buy from and sell to. Period.

You’re basically saying I should buy American because I’m American? Well, that’s the attitude that gutted the US auto industry, as the Big Three took advantage of patriotic hicks and produced crap products for decades until the roosters came home to roost during the financial crisis.

#17 Comment By Kurt Gayle On January 24, 2014 @ 3:44 pm

When at long last a candidate for president secures the Republican or Democratic party nomination on the platform of national reindustrialization platform long-espoused by Pat Buchanan, that candidate will win the election.

As President he or she will put into effect a national economic plan that marries the engine of private sector capitalism with a government policy of protectionist tariffs that will rebuild a powerful U.S. economy and restore “the living wage” for American workers.

“The 1%” will resist these changes — and some will then run — but the rest of the country will unite across class and will once again begin to achieve an economy, and a society, that will be the envy of the world.

Let’s do it!

#18 Comment By cka2nd On January 24, 2014 @ 3:47 pm

hn Morrison says: “Not a word from the US Conference of cowardly Bishops.Love thy neighbor ,open borders, silence on the Military industrial complex war mongers, the fed money changer counterfeiters.Orwell you are right. See Matthew XXIV,Luke XXI, Apocalypse XX”

Far be it for me to carry water for the Catholic Church but to be fair, they have a whole webpage of links to statements on Trade going all the way back to 1986:


#19 Comment By Adam On January 24, 2014 @ 4:09 pm

Free Trade is a euphemism chasing ever more profit through distribution of cost to others. Essentially a version of Andrew Jackson’s claim in regards to banking, privatized profit and socialized loss. American labor is paying a cost, China is paying a cost in regards to the very air. Free traders don’t like to talk about the benefits of regulation because it does not benefit them. Regulating polluntants in China could benefit American labor by bringing costs in line. Free trade, however, isn’t about leveling the playing field. It’s all about moving the goal posts to the advantage of capital.

#20 Comment By cka2nd On January 24, 2014 @ 4:16 pm

collin says: “What broke the back of unions in the US in 19070s and 1980s? While we can discuss Reagan’s policies here but long term union power continued to diminish during the Clinton 1990s as well. It was the Japanese Inc. that competitively pushed back union power.”

Japan, Inc. was pretty much a dead issue once their economy when into its decade-long recession. Automation (starting in production and services and only later in back office functions), deregulation (starting with Carter in the 70’s), unionbusting (kicked off by Reagan in the 80’s and barely touched by Clinton) and so-called – Happy, Johann? – free trade agreements (it took a Democrat to push through NAFTA) and policies (“Take our tax breaks to relocate production to El Salvador, please.”) is what broke the backs of the unions and the working class and is now breaking the backs of the middle class. The rise of finance to the commanding heights of the economy is both a symptom and a cause of all of this.

#21 Comment By GB On January 24, 2014 @ 4:18 pm

The rich invest for inflation. Real estate. Stocks. Precious metals.
The poor do not have money to invest.
Those poor who did become rich, invested.

The fed has devalued the dollar 95% in the past 100 years.

You have to ask a question. Why does the fed believe we need 2% inflation per year?
What’s wrong with deflation, ie cheaper prices?

The fed tries to avoid deflation like the plague.

Have you ever seen a sale at the department store where people avoided it?

Thought not. So deflation would be good. Your money would buy more. But then the bankers could not take your money away from you without you realizing it.

That’s where we’re at.

#22 Comment By cka2nd On January 24, 2014 @ 4:18 pm

Libertarian Jerry,

It’s not as if public sector employees have seen their income and compensation go up that much over the last 30 years, it’s that their private sector counterparts have seen theirs driven down. Civil servants, who started out making less than private sector folks but enjoyed better benefits and job security, have had to deal with years of wage and hiring freezes, privatization and contracting out, merit pay schemes (= favoritism), civil service reform (effectively, a return to Tammany Hall-style machines), the weakening and conversion of pension plans (offsetting the infrequent bumps in benefits and COLA’s) and paying more for health insurance (effectively, a wage cut).

Direct care jobs with the developmentally disabled are not some of the best jobs available in a lot of upstate New York counties because they pay so handsomely (and job security is soon to be a thing of the past, too) but because the far better manufacturing jobs that used to be there have been shifted to right-to-work states (“Welcome to the U.S. South, America’s very own Third World !”), Mexico and Latin America, China, the Indian sub-continent and Southeast Asia.

And, oh look, the U.S. South is playing its historic role again but this time for European, Japanese and Korean manufacturers who want to escape unions and prefer a more docile workforce. It’s “The Little Foxes” all over again.

#23 Comment By Michael N Moore On January 24, 2014 @ 4:20 pm

Who benefits from opening up access to the greatest consumer society in the World and thereby destroying it?

The answer is agribusiness exporting billions of tons of feed soybeans to China and financial services importing billions of dollars from China where everyone saves and nobody buys a damn thing; particularly from us.

#24 Comment By cka2nd On January 24, 2014 @ 4:21 pm


Not all free trade is bad nor is all protectionism good. I doubt Pat is a big fan of agricultural subsidies, but I doubt that most Americans want to rely on imported food prepared under heaven only knows what regulations.

#25 Comment By Mike On January 24, 2014 @ 5:20 pm

Pat makes extremely valid points on how offshoring allows American corporations to get away with working conditions in cheap labor markets the world over that wouldn’t be possible/permissible in the United States. The also avoid paying US taxes, don’t they?

It is also obvious that immigration law is not enforced in the workplace because American business needs illegal labor to exploit at the expense of the common good of American workers, i.e., the living wage, hospitalization and retirement benefits that Pat referred to. Without this employment benefits package, there is no more middle class, period. Not to mention that American taxpayers are forced to pick up the tab to educate and medically care for this huge, not so shadowed workforce as business privatizes their profits while socializing their costs. This is called corporate welfare.

Just read Ellen Schultz, in her award winning Retirement Heist, How Companies Plunder and Profit from the Nest Egg of American Worker, Portfolio/Penguin Books 2012) to get an idea of how ruthless and out of control America’s business class is. Schultz documents how an alliance of two groups, top executives and their facilitators in the retirement industry (benefits consultants, insurance companies and banks, played a huge and hidden role in the death spiral of American pensions and benefits. And that a little over a decade ago, most companies had more than enough set aside to pay the benefits earned by two generations of workers, no matter how long they lived. But by exploiting loopholes, ambiguous regulations and new accounting rules, companies essentially turned their pension plans into piggy banks, tax shelters and profit centers. Especially facilitating a transfer of wealth from rank and file pension funds to management via SERPS or supplemental executive retirement plans.

Here is some of the data Schultz culled:

“When GM, ATT, IBM and other corporations complain about how much more their “legacy costs” add to the price of their products, they always exclude to mention the ever increasing percentage of their executive legacy liabilities. Indeed, the trend has been freeze employee pensions, convert it to a cash balance plan while at the same time provide executives with SERPs containing exorbitant formulas which spike in value the older they get. While companies freeze employees pensions by overstating their obligations in such phraseology as their employee pension plans were so onerous that they could impair our ability to achieve or sustain future profitability, executive liabilities have been growing quietly behind the scenes, producing a mounting obligation, much of it hidden via creative formulas and alternative types of compensation (exorbitant bonuses, cost of living adjustments, 401(k) enhancements, etc.) that substantially pad an executive’s’ final payout when he retires.”

Schultz’’s research further reveals that these sinister government facts:

“Social Security data, however, shows that by 2008, executives were receiving more than one third of all pay at US companies, more than 2.1 trillion of the 6.4 trillion of total compensation. The 6 percent of those taking home one third of all pay includes everyone earning more than the wage base. But the top 2 percent of earners account for the lion’s share of the $2.1 trillion. And that’s just the pay top earners receive or defer. The figure understates executive pay because it includes just salary and vested deferred compensation, including bonuses. It doesn’t include unvested employer contributions and unvested interest credited to deferred compensation accounts. Nor does it include unexercised stock options (options aren’t subject to payroll tax until exercised) and unvested restricted stock (which isn’t subject to pay roll tax until vested). Also not included in the total compensation figures are types of executive pay that are never subject to payroll tax at all . . . . . The compensation data also leave out compensation paid to hedge fund and private equity managers. The billions they receive isn’t considered pay; it’s treated as “carried interest,” which is taxed as a capital gain. At the giddy height of the mortgage bubble in 2006, economists at Goldman Sachs analyzed what had been the biggest contributors to record corporate profits. The lead items on their list weren’t productivity, innovation, or the quality of management. ‘The most important contributor to higher profit margins over the past five years has been a decline in labor’s’ share of national income,” they wrote.”

#26 Comment By Kurt Gayle On January 24, 2014 @ 5:28 pm

I went out and bought Pat Buchanan’s “The Great Betrayal — How American Sovereignty and Social Justice Are Being Sacrificed to the Gods of Global Economy” as soon as it hit the book stores in 1998.

“The Great Betrayal” was, and is, a powerful indictment of so-called “free trade” and what has done, and continues to do, to the American economy — and to our society. The book remains very relevant today and I recommend it.

#27 Comment By LarryS On January 24, 2014 @ 5:55 pm

Welfare, food stamps, unemployment payments are also the true costs of free trade. If you don’t want to pay more in prices for your neighbors to have decent wages, then you will pay in taxes what is required to provide food, shelter and other necessities to your neighbors who cannot provide for themselves. America will not let people go without the basics. The choice is higher prices or higher taxes?

#28 Comment By carl lundgren On January 24, 2014 @ 7:49 pm

“Thought not. So deflation would be good. Your money would buy more. But then the bankers could not take your money away from you without you realizing it.”

I am sure some readers with better grounding in economics than I can explain it better, but:

1. You are assuming you will be getting the same amount of money.
2. Why spend money on goods and services when you know it will be cheaper later?
3. Why invest when you can profit from keeping your money in a mattress?
4. Have any debt? Mortgage, etc. You think they will reduce the payment amount because the money they are getting is worth more?

#29 Comment By Marc L. On January 24, 2014 @ 8:44 pm

How ironic………..an eco-piece coming from Pat Buchanan….I’m no leftist and never will be, but when I saw new fleece-jackets at the price of 3,99 € today in a ‘Real’-Supermarket at Hannover, Germany, I felt like robbing some poor Thai/Turkish/Bangladeshi woman when I tried it on….what can we do as lower ‘middle-class’ of the ‘free world’ – we’re forced to buy those unfair trade products as both of us, the poor 3rd world workers as well as the workers of the rich ‘free world’ aren’t paid enough – SOMEWHERE the surplus goes to though, right? Good for those.

“WorkingClass” says “Pat Buchanan and Ralph Nader agree regarding the evils of “free” trade. It’s not about left or right. It’s about telling the truth.” – and I agree (and would also like to bring Ron Paul and the Libertarian movement into the equation despite their economic fundamentalist philosophy) – Pat Buchanan is one of the too few Conservatives who started to overcome the ‘left-right’ paradigm some time ago – time to strip off the red and blue gloves and get honest and real! – the true and moderate left as well as the truthful conservatives need more Pat Buchanans now!

#30 Comment By TomB On January 25, 2014 @ 12:31 am

Johann wrote:

“This is where I depart from Mr. Buchanan. Truly free trade does not cause income disparity and does not impoverish a nation.”

First off let’s define “truly free trade,” which by definition *has* to mean at least roughly *fair* trade. After all, it’s hardly “free trading” for country A to manipulate its currency (which Japan and China are doing with a vengeance) so as to intentionally benefit its exports and disadvantage our imports.

And the things that others are doing in addition to manipulating their currencies abound. (And yes, I know that we do *some* stuff too, like our sugar tariffs and etc., but we don’t even rank as pikers when it comes to unfair trading.)

So, if you have a truly “free trade” relationship, you *do* get what Johann says, and that will (within reason) balance out the balance of trade. Why? Because as he implies doing so is really no different than any other domestic market. Competition (truly fair competition) comes in to exploit this or that perceived opportunity, and if successful perhaps drives out the less efficient and instead of that happening between competitors across the U.S. street from each other, it just happens between competitors in different countries.

But look at the figures Buchanan cites: Since Bush I … $10 *trillion* in trade deficits. And as he further notes Johann, trade deficits *reduce* a country’s GDP.

Or, as one econ professor said to me, under true free trade of course you’re going to experience some periods of trade surpluses and some of deficits, so it’s like sometimes getting transfusions and sometimes losing a little blood. But constant trade deficits or significant size ($11 *trillion!) are “like opening a vein and watching your blood run out into the sand, without a donor in sight.”

To *some* degree you have to admit to “free-and-fair-enough” trade even when another country’s labor market/cost of living is much cheaper.

But that’s not nearly our story. As I’ve said before, go read Reagan’s Clyde Prestowitz for awhile over at Foreign Policy and be amazed (and disgusted) at the incredible number and degree of ways we are getting intentionally, unfairly screwed.

In short, using the deeply dishonestly used banner of “free trade,” our politicians have perpetuated upon us perhaps the best and most successful trick since the Trojan Horse.

#31 Comment By Frank Stain On January 25, 2014 @ 9:20 am

Tom B: ‘Or, as one econ professor said to me, under true free trade of course you’re going to experience some periods of trade surpluses and some of deficits, so it’s like sometimes getting transfusions and sometimes losing a little blood.’

That’s a really important point. If we were really in a world of free trade, sometimes we would sell competitors more of our stuff, sometimes we would buy more of their stuff. What we have, instead, is a system in which the trade imbalance is structural. The American consumer, in other words, plays a structural role in the world economy as buyer of last resort of other people’s cheap tack. This is not free trade. It is a political construction designed to put economic pressure on wage earners. When trade deficits are a permanent part of the system rather than a temporary aberration, you have to conclude that the system is designed that way. One of the most important consequences of the trade deficit is to weaken domestic demand, leading to an economy of permanent underemployment. This is good in the short term for business owners who get to pay low wages. In the long run, everyone is beggared.

#32 Comment By The Protectionist On January 25, 2014 @ 3:02 pm

Geldstone has taken it a step further: there has never been a sound theory of economics. All superpowers grew up behind a wall of protectionism. Now we finally have an economic model to make sense of this success.


#33 Comment By Mark Rothschild On January 25, 2014 @ 4:58 pm

Pat, you are a master at reaching the right conclusions from terribly faulty arguments!

Yes, it is true that the middle class is being hollowed out through wages that are declining as a result of globalization, but free trade is not the cause of American deindustrialization.

Americans are over-consuming cheap products of Chinese industry because of supercharged level s of purchasing power being made possible by huge persistent shortfalls in federal revenue, and destructive overconsumption caused by the Fed’s financial repression of interest rates.

Uncle Sam and the American consumer are both living on plastic and spending like crazy!

The combination of toxic federal and consumer debt has repressed savings available for investment, and created huge destructive asset bubbles that boost the portfolios of Wall Street while the prudent bond holding Main Street retiree suffers the effects of the Feds repression of interest rates.

Blaming “creative destruction” just allows the real culprits off the hook, and at the same time implies that the free enterprise system is somehow flawed. What is flawed is the crony capitalism and free-lunch economics of a filed leadership class.

Social Security’s eventual insolvency is simply an actuarial fact of life. It might well be avoided, but it will require a society that saves rather than spends.

None of what I’ve said disputes your basic point about the hollowing out of the middle class. It is a fact, but in my opinion the irresponsibility of the Establishment is the cause, not free enterprise.

#34 Comment By TomB On January 26, 2014 @ 9:53 pm

Mark Rothschild wrote:

“free trade is not the cause of American deindustrialization.”

No it isn’t; you’re right. *Unfair* and hence unfree trade is, in the Trojan Horse guise of free trade.

Look at what you wrote again Mark and follow your own logic:

You note, that is, that it’s the low wages of global competition that have hollowed out middle-class earnings, but consider that those low wages elsewhere have almost always existed elsewhere. And yet we stayed industrialized here for any number of reasons. (What David Ricardo called “comparative advantages.”)

So what changed? Well to *some* degree things *fairly* changed: Other economies and labor markets developed to as to better compete. But still, consider just simply the additional cost of shipping say, T.V.s from China to the U.S., and from there onto all of America’s town and cities. What in the world could make a Chinese manufacturer competitive with a U.S. manufacturer given that simple fact?

Well, it could be (and has been) made competitive by China essentially subsidizing its manufacturers. Or Japan or the Euros their autos and planes and etc. Even just simply by having their governments pay their worker’s health care subsidizes the hell out of them.

Well okay, one might say, even then the U.S. should not play “protectionist” because, after all, it means the good coming in we have to choose from are subsidized cheap for us! We are getting a deal, right? Even if it’s screwing our own manufacturers!

Except … what foreign government would *do* that and hurt itself unless it *knew* that it could protect its subsidized industries from *our* manufacturer’s competition. And after all our manufacturers had a helluva lead time in terms of ability to make lots of stuff, right?

But there’s then the real kicker: Not only have the foreign governments subsidized their manufacturers, they have done so because they know it’s not a waste because they know that in all kinds of various ways it is going to block or impede competition from *our* manufacturers. They wouldn’t do it otherwise.

And so what’s the natural response if you are an American manufacturer? Easy! Move! Export your manufacturing over *to* those countries and hire their workers! If you *own* country won’t defend you, well hell move to one who will.

There’s just no other explanation for what happened, Mark. To suddenly go from us having this enormous comparative advantage just in industry *generally,* to suddenly see domestic industry after domestic industry going down the toilet … nothing else in the world but a grotesque uneveness developing across market after market can be faulted.

And the result is … well for example, we make not a single T.V. in the U.S. anymore.

You are thus right in your concluding point: It is *not* free enterprise that’s at fault here. And David Ricardo remains right with his theory of comparative advantage even which, in essence, is just the theory of free enterprise writ global.

BUT, it has been the massive corruption and in some cases really the almost total destruction of free enterprise and free markets that have screwed us.

#35 Comment By Mark Rothschild On January 27, 2014 @ 10:59 pm

Thanks for your reply Tony.

Yes, the Chinese government assumes the cost of health care for workers, and you correctly identify this as a subsidy that undercuts American competition. However, I would ask you to consider the dollar value of a Chinese health care subsidy. I think you would agree that American workers would not have any interest in Chinese quality medical care. In other words, the value of the subsidies working against American competition from developing countries is not a significant cause of our competitiveness gap.

The problem is simply that the hourly wage in China is just so low that there is no possible federal subsidy that will make it profitable to pay Americans to assemble TV sets!

Some people see the developing world catching up technologically to the West and they rub their eyes and say “this can’t be happening”! Well, it is happening.

There are things we can do, for example we can stop being a bottomless pit of consumption as I discussed in my comment for Pat’s article. Also, as Pat has pointed out in other articles the intellectual capital of the population is something we will ignore at our peril. Policies that pay appropriate attention to demographic issues are part of this discussion. When all is said and done the race is not to the swiftest, it will be to the smartest.

I’m not an absolutist when it comes to free trade. Some aspects of our deindustrialization could and should have been avoided.

#36 Comment By TomB On January 28, 2014 @ 7:49 am

Mark Rothschild wrote:

“In other words, the value of the subsidies working against American competition from developing countries is not a significant cause of our competitiveness gap.”

But Mark, of *course* subsidies and other things are. For instance, looking at the health-insurance issue as you do it’s clear you’re viewing it from the wrong end of the telescope: The Chinese system (or the Japanese, or the Canadian, or German, or whoevers’) for instance isn’t significant in terms of how little value it might be to the Chinese. It’s significant because of the cost to *American* manufacturers who compete with them to provide same to our *American* workers.

Thus for instance I’ve seen estimates that some $2000 or so of every car built by Detroit is there because of Detroit’s obligation to pay its workers health-insurance. And one can just imagine how many car buyers Detroit loses to Japan or Germany or South Korea because of that sticker factor.

BUT, the question is whether such factors are just “natural” and thus can’t be said to be unfair, or whether they are artificial and thus are.

For instance, you talk about the low wages of Chinese workers, and I’d agree that this is just a naturally occurring situation (for want of a better word) that hasn’t been manipulated into place by China. And so you bet, Americans just have to compete against that, with us however also holding some “natural” advantages of our own, (The relative sophistication of *our* workers, for instance, our better transportation infrastructure and etc.)

And I wouldn’t even call a national health-care system relieving foreign employers of the need to offer health insurance to their workers “unnatural.” It isn’t designed to make economic competition with others unfair.

But of course simple common sense tells that at *some* point advantaging one’s own workers can overcome the balancing effect that another’s country’s workers naturally enjoy.

And that’s what’s happened, with their being *lots* of ways to “unnaturally” advantage one’s workers which is what lots of our competitors do. Just consider currency manipulation which the U.S. doesn’t engage in at all really: Just recently I saw some expert say that Japan’s essentially amounts to a simply huge tariff on the sale of U.S. goods there. Damnit I forget the figure, but it’s like a 15-25% price differential.

And then you get all the game playing that these other countries engage in such as in Japan again which was just notorious for rejecting American product after American product supposedly for “safety” concerns or etc.

A few years ago I remember reading something indicating, for instance, that of all the cars sold in Japan for that year only about 12,000 were American made.

Now *certainly* in that nation of millions upon millions more than a piddly 12,000 people would ordinarily find at least *something* in *some* American car to like. But via all kinds of manipulations and pressures, the sellability of such cars to the Japanese was so disadvantaged that 12,000 was all they could peddle.

Or we could look at South Korea where U.S. cars were always very rare. So we signed the usual kind of “trade deal” we get now that screws us because of what it allows against us. And what happened thereafter? Well, pretty much the same, with one report noting Korea “imposes huge penalty taxes on U.S. imports and sets emission standards at a level that makes it nearly impossible for U.S. brands to get sales clearances.” And yet, the report notes, “[i]t’s definitely not about quality,” quoting J. D. “David” Powers, founder of the J.D. Power and Associates. And in a 2011 NPR interview, Eric Martin, global trade reporter with Bloomberg News noted that “[w]e currently sell 13,000 cars — the U.S. to Korea each year — versus about 600,000 Korean cars coming into the U.S.”

The damned thing about all this is that our inability to talk openly and honestly about damned near all issues today has caused the catastrophe of our deindustrialization. Because if one *could* have had the U.S. respond to this kind of unfair competition we would have held on to our industry.

But no, any such attempts were shouted down by cries of “protectionism”! (Lots funded by foreign manufacturer and countries.)

So what do we do instead? Oh we are content to just blast our manufacturers who then move their production overseas.

But consider: There’s tons of costs in making such a move, right? And who really wants to move? But what are your choices when your government won’t protect you from that unfair competition so that you *can’t* compete anymore?

Well your choice is to go out of business, or to move your production to a country that *does* protect you and advantages you.

And that’s exactly what’s happened, isn’t it?

#37 Comment By ejsjr On February 20, 2014 @ 4:08 pm

This seems to be an issue on which conservatives and liberals can agree. Corporate “free trade” benefits a handful of already obscenely rich people and harms everyone else. Among other things, “free trade” has destroyed American jobs by the millions, destroyed our industrial base, resulted in wage stagnation, aggravated the already extreme income and wealth inequality in our country, destroyed the tax base of our state and local governments, undermined social and economic mobility, given the economic “elite” so much money that they can literally buy our government to keep their built-in advantages, including historically low taxes and damaged the ability of our federal government to fund the social safety net. Oh, yeah, and our formerly great cities, like Detroit, Buffalo and many, many others are now dead-end ghost towns.