The United States of America is the best modern example of a free trade zone. The example of the power of free trade among the thirteen colonies exemplified, perfectly, the contrasts between mercantilism and economic liberty. This robust power of economic liberty would eventually be popularized by Adam Smith in The Wealth of Nations.
Adam Smith contrasted mercantilism, the practice of economic domination of other nations through the power of trade, with the prosperity that arises when nations trade honestly with one another. Nations practicing mercantilism sought to make other nations subservient by selling merchandise but refusing, by tariffs and taxes, to purchase an equal monetary amount from the nations they sought to impoverish. More importantly, nations practicing mercantilism sought to manufacture finished goods while receiving raw resources from their debtor nations.
As long as the United States traded freely within its own expanding borders, its prosperity and manufacturing became ascendant, despite the pressures of mercantilist trading partners such as Great Britain. By the end of World War II the British Empire ceased to exist as a mercantilist power, and the United States was the premier manufacturing and economic power in the world. Since the age of NAFTA under President Bill Clinton and historic GOP majorities in congress, the manufacturing base of the United States has been gutted. Why? What went wrong? Why was “free trade” so destructive to the American economy?
First of all, it was free trade in name only. It wasn’t free trade at all. Anyone who ever called our international ‘free trade’ agreements free trade were liars.
There is no such thing as unilateral free trade. If one trading partner is protectionist or practices mercantilism while the other partner does not, this isn’t free trade. It’s a give away. It’s highway robbery. It’s high treason, but it’s NOT free trade. To the extent that free trade, or just trade, is good for all partners; idiotic trade, treasonous trade, or corrupt trade eventually damages every partner. China, for example, has run up trade surpluses with the West to such an extent that the economic power of its trading partners has been slowed or diminished. As a result, China is killing the golden goose. Who will China trade with if its Western markets are diminished? The recent slowdowns in the Asian economy are a partial witness of the corrupt trade practice the East has followed with the West.
Do America’s trading partners practice mercantilism today? While some nations such as China have sought gold reserves, today’s economic gold standard is the American dollar or American treasuries. Are American trading partners hording American treasuries and dollars? Yes, everyone from Saudi Arabia to China have the good sense to maintain trade surpluses and to invest that wealth or horde that wealth. Thinking that having material things for one’s citizens is more important to foreign governments than hording American currency is utterly naïve. Having material things for one’s subjects (as in Saudi Arabia) or citizens (as in China) is of some value, but having the world’s mightiest military held hostage by its nation’s debt is priceless.
Secondly, our free trade agreements were free trade agreements in name only. The larger lesson of desolated Detroit, a lesson that was always self-evident from Adam Smith’s work anyhow, is that only free peoples can engage in free trade. While China is not a member of NAFTA, it is a member of the World Trade Organization (WTO). So also are Japan and South Korea, other nations with which the United States has unthinkable trade deficits. This monstrous world-wide trading organization seeks to provide the standards by way of which trade is “regulated.” Since all regulation is anathema to the idea of free trade, such an organization is as much a farce as Marxism. Since Marxism is a logical impossibility, it can never exist in practice. Likewise, the logical impossibility of the WTO means that, in practice, whatever it is, it is not an organization that sets standards for free exchange. Only a political union can provide an atmosphere of free trade, and then, only if the political union promotes and defends the liberties of its citizens. A free citizenry is what allows the invisible hand of the free market to work.
Finally, it follows from the premise that “only free peoples can engage in free trade” that free trade can only be pursued, not achieved, among different nations. A political union among free people is the only basis for the adjustments that take place as part of genuine free trade. Among various nations, various degrees of economic freedom and political freedom result in unequal trading relationships. These inequalities are the responsibility of each nation to monitor and evaluate. The tokens of unfair, or unequal, “free trade” can be found in trade surpluses or deficits and in the aggregate increases or decreases in the manufacturing sectors of various national economies.
None of this takes rocket science to describe and to apply. That’s why the free market works. Workers, manufacturers, merchants and producers of every kind measure their own microeconomic trade deficits and adjust. This is what allows for efficiency in every economy. Recognizing that “free trade” philosophies have been applied so poorly implies corruption. Almost everyone recognizes that transnational corporations and large banking interests are profiting from the seemingly idiotic application of free trade philosophies. While greed means wanting more than one needs, and while no one can be a judge as to what another feels he needs, greed is certainly manifest in the corruption that has become international in scope and rotten to the core.