Pat`s Protectionism

(Maybe some people don`t like cats as much as I do – some readers thought I was attacking Pat Buchanan`s fine Jan 18 immigration speech. I was more critical of his views on trade, in a review that Bob Tyrrell asked me to do for the American Spectator at Buchanan`s own suggestion. But he`s still on to something.)

The Great Betrayal: How American Sovereignty and Social Justice Are Being Sacrificed To the Gods of the Global Economy by Patrick J. Buchanan, Little, Brown/ 384 pages/ $22.95

REVIEWED BY Peter Brimelow, American Spectator, April 1998

In the heart of every Southern boy, William Faulkner once wrote, there is a place where it is always that hot, still summer afternoon in 1863 at Gettysburg, with Pickett`s troops already deployed and the battle flags all out of their leather cases, but the disastrous, decisive charge not yet irretrievably begun.

For the last couple of years, some observers of Patrick J. Buchanan have felt very much the same way. Whatever you think of him, Buchanan must be ranked perhaps the most remarkable political force to have emerged on the American scene in many years. Like the Army of Northern Virginia, his courage and (intellectual) hitting power are undeniable. He has shown an astonishing ability to live off the land, finding the downsizing issue and rattling Bob Dole`s eyeteeth in New Hampshire although totally unsupported by the Beltway conservative establishment and any of its institutions. And, however wrong-headed, Buchanan has at least begun the task of rethinking conservative grand strategy in the wake of the collapse of Communism and the world-wide triumph of market economics, while other conservative leaders are just blindly repeating the tax-and-crime themes in use for a generation, with ominously decreasing effect.

But now, again like the Army of Northern Virginia, Buchanan has chosen to launch an all-out frontal attack on a heavily defended position: the orthodoxy of free trade that dominates both parties and the entire economics profession and also the very conservative movement that is his natural constituency.  He is fully aware of this last paradox, and wryly quotes his own frequent volleys on behalf of free trade during his long service as a loyal soldier in the movement. He says he was converted on the campaign trail, by seeing first-hand the impact on American workers laid off when their plants relocated abroad. (Full disclosure: I critiqued an early draft of The Great Betrayal, to no particular effect that I can see, and am kindly thanked in the acknowledgments.)

Buchanan`s attack is delivered with his habitual fury and inflicts serious damage. Precisely because free trade is so dominant, it has hardened into a dogma that many of its more dimwitted proponents no longer truly comprehend. For example, when campaigning in South Carolina in 1996, Buchanan was confronted with the argument that Spartanburg`s BMW plant was proof of free trade`s benefits. There was obviously something wrong with this picture: free trade is supposed to work by bringing lower prices for consumers through imports, not foreign-owned branch plants. And in fact, as Senator Ernest Hollings pointed out at the time, South Carolina`s numerous foreign branch plants were developed because of protectionism, not despite it – Washington was making its periodic noises about import quotas, and foreign manufacturers moved in to safeguard their access to the U.S. market.

“Protectionism not only saves jobs, it creates new ones,” Hollings concluded, to Buchanan`s approval. An economist would have to concede he`s right. The question, of course, is whether those jobs are worth their cost to the American economy in aggregate. But they do exist.

Another example: Senator Phil Gramm, dropping out of the New Hampshire primary, called protectionism “immoral… I cannot and will not support anyone who`s a protectionist… It`s a litmus-test issue for me… If I want to buy a shirt in China, who has the right to tell me as a free person that I can`t do it?” The Founding Fathers, that`s who, replies Buchanan. The Constitution specifically declares that Congress “shall have the power” to lay “Duties” and “Imposts” and “regulate Commerce with foreign nations.”

And they did – the second bill that President Washington signed was the Tariff Act of 1789. Senator Gramm`s “litmus test” would have ruled out every Republican president before Eisenhower. Free trade may well be a good thing. But Buchanan`s revisionist historical tour de force demonstrates conclusively that it has not, until very recently, been an American, much less a Republican, thing.

It should also be noted that Buchanan`s argument is somewhat more compatible with free market writ than might appear at first glance. A tariff is, after all, just a tax – and conservatives who regard tariffs as heresy have sat still for direct taxes on income, nonexistent before 1913, that now exceed 15 percent of GDP. Buchanan puts it this way: “The old Republicans taxed work, savings, and investment 0 percent, and foreign goods at 40 percent. We do the opposite. We tax the return on savings and work at 40 percent, and foreign goods at 0 percent.” Would his proposal to redress the balance with a 15 percent tariff on imported manufactures cause more misallocation than the federal income tax (which he wants to abolish – despite some of his reported campaign comments, Buchanan in this book appears staunchly anti-statist at home)?

Well, yes, is the conventional reply, if it triggered a global depression like the one caused by the 1930 Smoot-Hawley tariff. Buchanan, however, argues that the Depression was caused by monetary contraction. The much-maligned Smoot-Hawley affected only a third of U.S. imports, at a time when trade was only 1.3 percent of GDP, and was actually proportionately less of a hike than the 1922 Fordney-McCumber tariff, which was followed by prolonged economic expansion. (Incidentally, isn`t it funny how the supply-siders who lionized Calvin Coolidge for his cuts in marginal tax rates overlooked the fact that he also raised tariffs and ended mass immigration?) No less an authority than Milton Friedman, on this point at least, agrees with Buchanan.

Further, free trade promises to maximize only overall, i.e., global output. It is logically possible that some individual country might do better with tariffs, although at some cost to global welfare. And it is a matter of proud principle with Buchanan that he doesn`t care about global welfare. He cares about America first (to coin a phrase). Of course, this is far from showing that the world`s technological, financial and economic leader actually would benefit from being denied the fruits of international specialization.

Finally, even if the U.S. does benefit overall from free trade, it is entirely possible that specific groups do not. Among academic economists, there is increasing interest in these redistributional aspects of free trade. Harvard economist Dani Rodrik published a much-discussed pamphlet on the subject, “has Globalization Gone Too Far,” last year. The debate about American income trends is a bit more complex than Buchanan allows for here. But he`s right that federal statistics do appear to suggest the bulk of workers are not appreciably better off than they were some two decades ago.

This may not be entirely due to trade. Rodrik`s Harvard colleague George Borjas has demonstrated that the effect of immigration is maybe four times more important, at least for unskilled workers. Even if it were, protection may not be the answer. It would just redistribute income some other way and there would probably be less of it. The phenomenon, however, is real. Buchanan is not imagining whose workers who touched his heart while campaigning.

Nevertheless, the standard arguments trained on Buchanan`s line of attack are so formidable that even the dimmest-witted free trader can hardly miss, and will certainly not look twice before hauling on the lanyard. It is hard to read this book without wincing in anticipation of the carnage.

Part of the problem is that Buchanan is basically a literary intellectual, who has essentially taught himself economics later in life. This can be a useful corrective to ingrown academic professionalism. Both supply-sider Jude Wanniski and TAS`s Tom Bethell have provided important insights. But it can also mean jarring cultural clashes, as when Buchanan denies that the high-tech U.S. textile industry is less efficient than China`s, it`s just that China exploits its worker and degrades its environment, so its textiles are…cheaper. I know what Buchanan means (I think). But many critics will not be so forbearing.

Another example: a chart of U.S. merchandise imports from 1950 to 1995 – unadjusted for inflation, and not shown as a fraction of GDP. Of course, it appears to go through the roof. No doubt this is due to naiveté about numbers – thus other Buchanan charts do show the trade deficit as a share of GDP – but it will certainly be attacked as fraudulent.

One real vulnerability is Buchanan`s focus on manufacturing. He flatly describes the merchandise trade deficit as a “cancer” – either we cut it out or it will kill America.” From a strictly economic point of view, this makes no sense at all. After all, the U.S. is paying for the deficit somehow, partly through service sector activities. But Buchanan dismisses the service sector. It should not replace manufacturing, he says, because manufacturing did not replace agriculture: they coexisted. Maybe they did coexist, but agricultural jobs do not: 10 million Americans worked on farms in 1900; only 2 million now. Buchanan justifies his concern for manufacturing partly on strategic grounds. But in the end it`s hard to avoid the feeling that he just plain likes the idea of making things – and doesn`t particularly like dealing with foreigners.

My own particular complaint about Buchanan`s economic analysis is that it takes no account of the modern system of floating exchange rates. This is not surprising, since his wide historical reading has necessarily been focused on the nineteenth century, when the dollar was fixed to gold. But floating rates would tend to counter the effects of tariffs. Any reduction of imports would cause the dollar to appreciate, pricing exports out of world markets and widening the trade gap again.

Ironically this silence on floating rates deprives Buchanan of an interesting argument. While the conservative establishment and classical liberals (if distinguishable) have been congratulating themselves on the reduction of protection, central bankers have been achieving the same result through massive manipulation of exchange rates – the so-called “dirty float.”  Driving a currency down is the functional equivalent of raising tariffs, since it increases the prices of foreign goods in the domestic market.  Conversely, the Wall Street Journal editorial campaign for a “strong dollar” is, in effect, inverted protectionism, because it would make imports cheaper and exports dearer.

And they think Buchanan`s mad?

In the end, the strongest arguments for Buchanan`s position are negative. It is a curious and little known fact that conventional economic techniques show surprisingly little GDP growth traceable to trade. This was a problem in Canada when it voted on free trade in 1988, because the benefit of giving up various cherished policy shibboleths was only a point or so of GDP. So tariffs probably would not end the world, although they probably would not do what Buchanan wants either.

What could justify tariffs, as in the eerily similar debate in free-trade Britain a century ago, is the Weltpolitik of which they form a part.  Joseph Chamberlain wanted tariffs, but as a means to unite Britain`s settler colonies in an imperial federation to match the German and U.S. superpowers.

Today Buchanan owns by default what we used to call at National Review “The National Question” – whether the U.S. will survive as a nation-state, the political expression of a distinct people, in the face of massive non-traditional immigration, official wimping out on assimilation and the obvious belief among parts of the economic elite that their interests lie more with their counterparts across the globe than with their nominal countrymen. Buchanan here repeats his call for an immigration moratorium. I think he would have been better advised to focus on that issue, if only because the consensus among economists now is that the post-1965 immigrant influx has brought no aggregate benefit to Americans. But what do I know? Among conservative activists, protectionism is clearly on the rise.

I think this attack will fail. But I would not have divided the army twice and won at Chancellorsville either.

Peter Brimelow is the author of Alien Nation: Common Sense About America`s Immigration Disaster (HarperCollins).