One, Two, Three, Four, Let's Have a (Minor) Trade War!

What ever happened to the free trade Democrat?

Michael C. Moynihan | September 16, 2009

Pity the libertarian Obama supporter—or, to use that peculiar solecism, the "liberaltarian"—who cast their lot with the Democratic nominee, more out of rejection of the Bush years than ideological affinity. It was, to use the language popular at the time, based on an ill-defined sense of hope. With the obvious exception of Atlantic blogger Andrew Sullivan, are any of those who identified themselves as free-market, small government Obama voters thus far pleased with the results?

Consider the endorsement Barack Obama received from Scott Flanders, the libertarian CEO of Freedom Communications, the owner of the Orange County Register. According to Register columnist Frank Mickadeit, when Flanders debated former Reason editor Tibor Machan in 2008, he surprised the audience by proclaiming that Obama was "the best candidate to work on four top libertarian reforms: 1) Iraq withdrawal, 2) restoring the separation of church and state; 3) easing off victimless crimes such as drug use; 4) curtailing the Patriot Act."

Well, let us take a very narrow window of time—the previous 24 hours—and give Obama's inchoate libertarianism a very loose doctrinal purity test. Yesterday, as noted by Reason's Brian Doherty, the administration announced that 3,000 more troops were headed to Afghanistan, and 1,000 more headed to Iraq—on top of the surge of troops previously deployed to fight the Taliban. And yesterday, according to the Associated Press, the administration signaled its support for the extension of "three key provisions of the Patriot Act that are due to expire at the end of the year, the Justice Department told Congress in a letter made public Tuesday." And how about one more from yesterday. According to this report from the BBC, the change agents at the White House have "extended the 47-year-old trade embargo against Cuba for another year."

That the administration plans on extending the failed embargo and travel ban on Cuba is, for those paying attention, unsurprising. Though he had opposed the Helms-Burton Act's continuation of the embargo while a senator ("It's time for us to acknowledge that that particular policy has failed"), a presidential run necessitated Obama's reassessment of the Trading With the Enemy Act. In a largely overlooked speech to Cuban-American voters in Miami—surprise!—the presidential hopeful promised to "maintain the embargo" as a way of inducing democratic change on the island, a policy bearing no fruit since the Kennedy administration. 

Like much else emanating from the White House these days, the administration's position on Cuba is incoherent and contradictory. Indeed, in an interview with Bloomberg the day before he announced plans to continue the embargo, Obama maintained that he "want[ed] to further expand trade." Perhaps not with Cuba—Americans are, after all, accustomed to the island existing only for the farmers and tourists of Europe, Canada, and Latin America—but the president was responding to criticism about his recent decision to slap a 35 percent tariff on Chinese tires. In other words, he wants to promote free trade by practicing protectionism.

An economics Ph.D. wasn't required to predict that the Chinese government would respond with tariff threats of its own, on everything from auto parts to imported chicken. As The Detroit News editorialized, the president might want to consider that "last year U.S. auto companies agreed to export more than $2 billion in vehicles and auto parts to China," much of which comes from Michigan. And with the constant media bleating about a "New New Deal" and magazine editors imagining the president as a modern incarnation of Franklin D. Roosevelt, one cannot help, in the largest economic downturn since the Great Depression, if minds wander to the ruinous Smoot-Hawley Tariff passed by President Herbert Hoover in 1930.

It was likely Hoover's great mistake—or, perhaps, elementary economics—to which the president referred when, earlier this year, he professed a "collective commitment to encourage open trade and investment, while resisting the protectionism that would deepen this crisis." After the Chinese publicly admonished the White House, Obama told a reporter that "it's in China's interests and our interests and the world's interests to avoid protectionism, particularly just as world trade is starting to bounce back from the huge declines that we had seen last year." These spasms of doublespeak are no doubt being cataloged by his opponents, ready to be deployed in the 2012 election. Imagine the fun Republicans could have with Obama's laughable claim, to a group of sinister Wall Street capitalists, that he has "always been a strong believer in the power of the free market."

It doesn't require a special level of cynicism to think that while the administration understands that punishing Chinese manufacturers makes little economic sense, the move makes a certain amount of political sense. In his rush to protect "American jobs" in an economy where so few jobs are currently available, Obama can claim that bone-headed protectionism has a positive effect on American industry, which might make sense to those who have never thought about basic economics (i.e., if Chinese goods are more expensive, it will even the playing field for American goods, at no cost!), while also repaying those delightful union honchos, so graciously supporting his attempts at health care reform. And if there was anything less surprising than the Chinese government's response to the tariff, it was the gleeful reaction of Big Labor. As The New York Times observed, "organized labor, having tasted success in this case, is pressing Mr. Obama to take tougher stances on a number of upcoming trade issue."

With this basic political calculation in mind, don't expect any movement on a free trade deal with Columbia anytime soon (which candidate Obama opposed in a speech to the AFL-CIO) or to see Mexican trucks operating in the United States anytime soon.

Perhaps the American Chamber of Commerce, which has calculated that further inaction on free trade agreements with South Korea, China, Colombia, and Mexico could potentially cost thousands of American jobs, is right in cautioning that this is a small salvo in a developing trade skirmish, and not the Fort Sumter of a forthcoming trade war. But there is ample cause for concern, as evidenced by the "Buy American" provision in the stimulus package, the administration's lack of movement on other vital free trade deals (like Colombia), and the president's history of waffling on whether NAFTA was a positive or negative development for the American economy.

As Reason contributing editor David Weigel wrote in 2008, NAFTA was "a New Democratic victory over the old union elements of the party." But free-market Clintonism is dead, and the old union elements have returned to their traditional place in the party. It was fashionable in the years following the 2000 election to lament the imposition of the 22nd Amendment, to wish that Bill Clinton could be our very own Hugo Chavez, running the country indefinitely. Eight years later, I'm starting to see their point. 

Michael C. Moynihan is a senior editor at Reason magazine.

Comments

Joe M|9.16.09 @ 3:08PM|#

Hey, Obama said he was a believer in the power of the free market. (except for tariffs, subsidies, taxes, etc.)

|9.16.09 @ 3:15PM|#

The disappearance of the Free Trade Democrat occurred in the Senate elections of the last 6 years. In every cycle, almost all Democratic Senate pickups were disastrous for free trade. Many of them ran on that very issue, especially in the Midwest.

|9.16.09 @ 3:16PM|#

Joe M,

Obama said he was a believer in the power of the free market.

Oh, he is... (In case you missed it.)

|9.16.09 @ 3:18PM|#

"Disappearance of the Free Trade Democrat"

They never existed. Democrats in favor of NAFTA and GATT were never for real free trade. They were in favor of destroying soveirgnty and thousands of pages of additional regulations that could be individually taylored for corporate clients with enough lobbying dollars to stifle competition.

True free trade comes in the form of eliminating beuracrats and regulations, not new 1000 page documents.

|9.16.09 @ 3:25PM|#

...more out of rejection of the Bush years than ideological affinity.

Wha? Bush was on the ticket in 2008? Why didn't anyone tell me? I could have voted against him too!!!

|9.16.09 @ 3:31PM|#

Actually, Gabe, in the 1920s the norm was free trade Democrats (lower prices for regular folks) and protectionist Republicans (protecting factory owners from competition). Funny how political positions can switch over time....

|9.16.09 @ 3:35PM|#

True free trade comes in the form of eliminating beuracrats and regulations, not new 1000 page documents.

Look, in fairness, much of those 1000 page documents were only that long because they indicated exactly how slowly each country could get away with lowering its barriers, and what sort of procedure there would be for complaining about a country not living up to the bargain. The latter you could call destroying sovereignty, but on the whole NAFTA and GATT reduce US (and other) regulations individually tailored for corporate clients with enough lobbying dollars to stifle competition.

When the US already has a dumb tariff of 50%, that a trade agreement has to spend pages explaining exactly how the tariff will be cut over ten years is unfortunate, but still better than the status quo ante.

|9.16.09 @ 3:37PM|#

Gabe, in comparison to the status quo of the time, NAFTA was a shining ray of free trade. Yeah it's bureaucratic, but far less bureaucratic than what came before. NAFTA was a first step. A lot more needs to be done, but NAFTA was a start.

You sound like those twits (ei. Hans Hermann-Hoppe) who denounces tax cuts because they don't immediately disband the IRS.
aren't complete disbandin of the IRS
p.s. GATT however, sucks all around.

Gilbert Martin|9.16.09 @ 3:41PM|#

"In response to criticism about his recent decision to slap a 35 percent tariff on Chinese tires, the president maintained that he "want[ed] to further expand trade."

Par for the course.

Obama's words are always 180 degrees off from his actions.

|9.16.09 @ 3:45PM|#

[Frank Mickadeit] surprised the audience by proclaiming that Obama was "the best candidate to work on four top libertarian reforms: 1) Iraq withdrawal, 2) restoring the separation of church and state; 3) easing off victimless crimes such as drug use; 4) curtailing the Patriot Act.

I would say that if you add my concern for those four items together it might equal my concern for the runaway growth in size and power of the federal government. Oddly enough Obama's actions in that area have not shown the slightest hint of libertarian restraint either.

Separation of church and state??? GMAFB

|9.16.09 @ 3:50PM|#

the best candidate to work on four top libertarian reforms: 1) Iraq withdrawal,

He is implementing the Bush Plan, although he did send another thousand troops there. Would McCain have done different?

2) restoring the separation of church and state;

Obama has shown he will pound the pulpit to press his policies with the best of them. As far as actual separation of church and state, did I miss the part where McCain was going to establish a religion?

3) easing off victimless crimes such as drug use;

Mr. "Legalization is not in my vocabulary"? Mr. "DEA raids will continue in CA under any fig leaf proposed by the locals"?

4) curtailing the Patriot Act.

The one he's extending? That Patriot Act?

Seriously, its time to shovel some dirt on the whole liberaltarian thing.

|9.16.09 @ 4:13PM|#

2) restoring the separation of church and state;

No, you guys, you misunderstood. He meant "restoring Rev. Barry Lynn of Americans United for Separation of Church and State" to a place in government. He did that, appointing Rev. Lynn to the Office of Faith-Based Initiatives's advisory council's task force.

|9.16.09 @ 4:15PM|#

Obama's words are always 180 degrees off from his actions.

President Obama is the Daniel Patrick Moynihan of our times.

|9.16.09 @ 4:15PM|#

RC Dean - Obama is clearly not working out. However, many people voted for Obama to stave off a Sarah Palin-Rick Santorum ticket in 2012, or worse, anything that includes Ric Keller.

The only defense I can muster for "the best candidate to work on four top libertarian reforms:" is that he says "Candidate" not "president". Clearly Obama's campaign has long since been forgotten over at the White House. McCain wasn't going to get out of Iraq, too many were more afraid he'd widen the war to Iran. John McCain was no religious ideologue, but he had (IMHO) a weird shift in his personality that made him bow down to the social conservative right - was it getting beat by Bush in 2000? Obama as a candidate looked good for the drug war and stopping the Patriot Act. On the first two, I think Obama and McCain would have similar accomplishments by now had McCain been elected. Who knows about the latter two, since Obama has completely reneged on everything related to those two.

creech|9.16.09 @ 4:19PM|#

I wonder how many of those low quality Chinese tires are being purchased by people making more than $250,000 per year? But, again, Obamessiah did not lie. He didn't raise taxes on those making less than $250,000, because this is a tariff not a tax.

Race Baiting for Dummies|9.16.09 @ 4:37PM|#

I heard about this a few days ago and my first thought was - would I really want Chinese tires on my car?

|9.16.09 @ 4:39PM|#

I don't make $250K a year, so I rushed out and bought a new set of tires. Hopefully they'll last me until a new president gets in office.
Not that it'll really matter.

|9.16.09 @ 4:47PM|#

Goodyear and Cooper have tires made in China for sale in the US market. They also make a lot of tires for the discount market.
So once again, the liberals are hurting the poor, but it's for their own good.

tankrunner1123|9.16.09 @ 4:52PM|#

While Buchanan and Dobbs might be cheering for this misguided protectionist bs it wont last. Obama will do a 180 on this buy America crap eventually, I give it a month.

|9.16.09 @ 5:33PM|#

where were you idiots when china imposed an excessive tariff if imported goods did not contain at least 40% Chinese made materials? Free trade only works if it goes both ways. It doesn't in reality, so keep shipping American jobs overseas while you pay the same amount for products made over seas that cost next to nothing to produce.

|9.16.09 @ 5:43PM|#

FUCK! I was one of those liberaltarians! This article just makes me feel like an idiot.

|9.16.09 @ 5:53PM|#

Free trade only works if it goes both ways.

Not true. Free trade works to the extent that it is free. Slapping a tariff on something makes it less free and harms both economies involved in the tariff. This is true whether it is the first tariff or the last.

The best course for an economy is to unilaterally free all trade under its control. Let others do what others will do to hurt themselves. You can only hurt yourself by responding in kind.

Stormy Dragon|9.16.09 @ 6:06PM|#

where were you idiots when china imposed an excessive tariff if imported goods did not contain at least 40% Chinese made materials? Free trade only works if it goes both ways.

Actually, free trade works even better if it's only one way, since it means that China is giving us all their stuff in exchange for little green pieces of paper they have no use for.

MNG|9.16.09 @ 6:22PM|#

The free trade Democrat shared the fate of the gun control Republican: core constituenties in each party respectively (unions and NRA) said "enough of that shit." In a way this is a good thing, a good chunk of the nation is wary of free trade and gun control and in a two party system it is good for them to have some voice.

|9.16.09 @ 6:38PM|#

...the gun control Republican...

The what?

Nice try at a parallel construction, but I think you caught a snipe there.

|9.16.09 @ 7:10PM|#

core constituenties in each party respectively (unions and NRA) said "enough of that shit."

You don't suppose any union employees at Boeing would be interested in not pissing off the Chinese? There are all sorts of well-compensated American union jobs sending goods and services overseas, they'd thank you for looking out for them if they could.

Anyone who is wary of free trade is a moron and in a Constitutional Republic they would be ignored.

|9.16.09 @ 7:33PM|#

I'm with captainbaldy on this one. We keep bending over backwards to send jobs over to China while they continue to come up with policies that discriminate against foreign companies. Let's see where this goes...

Enyap|9.16.09 @ 8:09PM|#

"The what?

Nice try at a parallel construction, but I think you caught a snipe there."

Ronald Reagan supported the Brady Bill and AWB, I would think he counts as a republican. Also another reason I can't stand it when libertarians who admire Reagan.

Enyap|9.16.09 @ 8:10PM|#

I can't stand it when libertarians admire Reagan.

Some Guy|9.16.09 @ 8:18PM|#

What ever happened to the free trade Democrat?

They are probably hiding out with the Free Trade Republicans. Now all we have are Dems crying, "The Republican congress shoved NAFTA down our throat! They're evil!" And Republicans crying, "Bill Clinton shoved NAFTA down our throat! He's evil, and plus we totally love the free market!"

|9.16.09 @ 8:21PM|#

Wow, I didn't know there was a name for it, but I guess I was one of those liberaltarians too. Of course, now I have to admit that Obama hasn't really done any of the things I was hoping he would. But then again, I would have voted for Elmer Fudd if it meant keeping Sarah Palin as far from the White House as possible. I'll take a big-government dictatorship over a theocratic dictatorship any day of the week. Though, I'd much prefer no dictatorship at all...

|9.16.09 @ 10:23PM|#

Unfortunately, free trade goes out the window when people are bitching about not having jobs.

Kinda like how, on the right, fiscal responsibility goes out the window when you have power. Everyone is a hypocrite.

Ebeneezer Scrooge|9.17.09 @ 2:10AM|#

I don't make $250K a year, so I rushed out and bought a new set of tires. Hopefully they'll last me until a new president gets in office.

Maybe you should have slowed down a little. The tariff is on Chinese made tires. Vietnam, Thailand, and everybody else, can still send us their tires. It won't take long for the big corps to work around this little "detail".

Ebeneezer Scrooge|9.17.09 @ 2:22AM|#

Meanwhile, we can piss the Chinese off but when they get done pissing around the back yard, there isn't jack that they can do about it.

As someone said it above, they've sent us many boats full of Chinese made stuff. All they got for it was little green pieces of paper, which may or may not ultimately be worth anything.

If there was another place on the map that they could move their credit accounts to, other than the US, they'd have done it by now. Problem is, there's nowhere else for them to go and find the magnitude of wealth that's at stake in the Chinese-US trade flow.

They have to take our little green dollars, until and unless they're ready to stop shipping boat loads of shit over here to us and say "that's it until you pay up".

Anyone who knows anything about China knows that they won't be doing that anytime soon. It would shut their economy down so hard that they'd probably have real, actual rebellions going on instead of serious grumblings about it.

For the foreseeable future, the Chinese boats are going to keep coming to America full of stuff. And American computers will continue to credit Chinese bank accounts with little electronic paper dollars. Which is something different than an actual paper dollar. And none of which has anything in particular to do with gold.


Calling Tim Cavanaugh: to what extent can Uncle Sam ultimately get away with exporting our inflation to China? Can I suggest, that question deserves one of your interesting little economics threads.

|9.17.09 @ 3:11AM|#

>I can't stand it when libertarians admire Reagan.

Anybody who doesn't admire Reagan is a fake libertarian. Ronald Reagan did more to advance human liberty than anyone since the founding fathers.

To paraphrase Robert Heinlein, Reagan restored freedom of thought on half a planet.

Which do you prefer: the blowhard "libertarianism" of the sophomore dorm, or the real world libertarianism of Ronald Reagan, which has given humanity one last shot at escaping collectivist hell?

|9.17.09 @ 3:39AM|#

"As someone said it above, they've sent us many boats full of Chinese made stuff. All they got for it was little green pieces of paper, which may or may not ultimately be worth anything."

I know this is why Milton Friedman said trade deficits don't matter, but I'm not so sure I totally agree with it. Maybe I just don't fully understand the whole situation. But I do agree that protectionism is bad, virtually without exception.

In the case of China, it isn't individuals or corporations who are taking in the dollars and holding on to them, it is their government. They hoard dollars, which are losing value, to keep the value of the renminbi artificially low to control inflation while their economy expands, and I guess, to increase trade. Of course, they also send some of those dollars back, by buying real estate and whatever else in the U.S. and some portion of the national debt (something like 5 percent I think). The whole thing seems like an unsustainable balancing act that will significantly affect both countries when it collapses.

This is my understanding of the situation. I don't know how accurate that all is, maybe someone with better knowledge of economics could correct me here...

AT |9.17.09 @ 8:32AM|#

I think trade deficits don't matter as long as the chinese know what the f they're doing. They can get US goods and assets on that paper, but the paper can and will probably loose value.

Enyap|9.17.09 @ 11:40AM|#

"Anybody who doesn't admire Reagan is a fake libertarian. Ronald Reagan did more to advance human liberty than anyone since the founding fathers."

Yes, the drug war, gun control, bailing out social security, massively increasing the size of the milatary, and inviting the religious right into the republican party did alot to increase liberty.

jv|9.17.09 @ 1:29PM|#

Thank you Mr. Obama! It is about time the US wakes up to what "free Trade" and "globalization" is doing to the country and the people.

Where did the money from the housing bubble go? Starts with a C and ends with an A if you need a hint. Russia and the Saudi royal coffers also got parts of it. India did not get as much because they did not have the cash to buy the trade debt bonds, but they got the college educated SW and engineering jobs.

It would be nice to assume that there could be reasonable, incremental claw back by the US to building wealth and tangible products again. But people don't work that way.

Protectionism and an all out trade war would be the best thing that could happen to America. America needs to leave the WTO and abrogate all trade treaties and start over from scratch with each and every one.

|9.17.09 @ 6:01PM|#

"Yes, the drug war, gun control, bailing out social security, massively increasing the size of the milatary, and inviting the religious right into the republican party did alot to increase liberty."

The only thing Reagan did related to gun control while in office was sign the Firearms Owners Protection Act, which was endorsed by the NRA. It addressed abuses by the ATF of the old laws and actually loosened gun laws for the most part. An amendment was underhandedly slipped into it which strengthened restrictions on automatic weapons.

Other than that, blaming him for increasing the deficit and size of the military is like blaming FDR for Lend-Lease. You ignore the fact that the military was all-volunteer, and would have never been able to fight the Warsaw Pact in Europe conventionally in its prior state--that is, tactical nuclear weapons would have had to be used immediately. Reagan handled the Soviet Union exactly right, and in doing so stood up against significant opposition from both Republicans and Democrats. He had a tremendous impact on the morale of the American people and people throughout the world living under oppression.

Obviously, he did some things wrong and I think he wasted his second term when he could have done more good, but to impugn his legacy while ignoring the fact that he was a significant player in the collapse of communism in Europe is disingenuous.

|9.19.09 @ 10:24PM|#

It's ColOmbia, not ColUmbia. For some reason, this sophomoric mistake keeps avoiding editors. Asides from that, good article

|9.21.09 @ 10:44PM|#

I'd have thought that with your nations industries lying in shambles around you, you idiots might come to your senses regarding trade and tariffs... but of course not. Don't let facts get in the way of a nice, simply ideology!

Tariffs are great for net importing nations and bad for net exporting nations. Please study your economic history before you argue otherwise. For all of you who would disagree, please name one major industrialized nation that did so without protecting it's industries? Just one will do.

Since before Alexander Hamilton's time those simple facts have been known, but now in the age of faith, in the age when believing something makes it real, who cares about the facts?

Think people, and ask yourselves these questions: how has prosperity ever come to a nation other than through industrialization? Do you really believe that industry will return to the U.S. under current trade policies? Or is it that you simply don't care in your adoration of the 'creative destruction' of capitalism.