Sunday, March 21, 2010

Scoring the Great Trade Debate

A couple weeks ago, I did a quick blog entry directing readers to the “Great Trade Debate” between Cato’s Dan Griswold and Ian Fletcher of the US Business and Industry Council and hosted by the good folks over at’s International Economic Law and Policy Blog.  Being the complete trade-nerd that I am, I eagerly awaited reading the clash between an immensely knowledgeable and unabashed free trader like Griswold and an admitted, ideological (as opposed to political) “proud protectionist” like Fletcher. 

Unfortunately, the debate didn’t turn out as I had hoped.  Don’t get me wrong: the exchange was interesting and produced a lot of good argument, but for the most part, the two debaters either talked past each other or simply spent their allotted space debunking the other’s prior stats and assertions.  Thus, the casual reader probably finished the debate just as he had begun it: confused about whom to believe and about which side he should support.

For my purposes, however, the debate was still immensely valuable because it provided a perfect example of how protectionists and free traders currently advance their arguments, and thus how free traders must revise their approach to the debate if they are ever to win the day.

Over the last year or so, I have attempted to show that for free traders to win the “great trade debate,” they must rethink their current, data-driven approach.  This means that before getting into all of the fancy charts and historical lessons, free traders first must demonstrate that trade is foremost a moral issue, and that free traders, not protectionists, are on the “right side.”  This is done simply by showing how anti-traders seek to forcibly thwart voluntary, mutually-beneficial cross-border transactions in order to transfer wealth from politically-underrepresented groups (i.e., individual consumers, service-providers, and downstream manufacturers) to other, politically-favored classes (typically heavy manufacturers or agribusiness).  It is reinforced by showing how protectionism is an invisible and regressive tax that disproportionately punishes low-income American families by forcing them to expend more of their paychecks to buy protected (and more expensive) food, clothing and shelter.  In short, protectionism is classic beltway politics, where special tax breaks, sweetheart deals and secretive earmarks rule the day.

Fletcher’s case is no different, even though he’s calling for an “across the board” tariff on all imported goods.  His tax on all US import consumption would be a massive wealth transfer from those consumers in non-manufacturing/farming jobs (engineers, lawyers, IT professionals, waitresses, nurses, doctors, marine biologists, etc. etc.) to the US manufacturing sector (which he just so happens to represent) and domestic farmers.  And oh by the way, a vast majority of all Americans work in jobs other than manufacturing or farming, so Fletcher’s “fair” tariff remains a giant, invisible, regressive tax on the many to line the pockets of the very few.  And of, course, it’s only achieved through government coercion.

The “unfairness” of this tax, and any other tariff like it, is clear, and once the free trader establishes these essential facts and the morality of his free trade position, he places the burden on the protectionist to prove why the coercive government intervention that he advocates is justified.  (We lawyers like to call this “burden shifting,” and it’s critically important in any debate.)  In short, the free trader can and should demand that the protectionist demonstrate why the common many should support the privileged few.

With the burden on the protectionist to prove why protectionism is justified, the debate might as well end, because the free trader will always win the day.   As I’ve repeatedly shown when debunking myriad “protectionist myths” out there, the facts simply do not support protectionists’ claims that (a) free trade harms the American economy, or (b) protectionism helps it.  And with the burden of proof on protectionists, the key here is causation, not mere correlation.  They must prove that trade causes pain, or that protectionism causes prosperity.  Spurious correlation (e.g., the trade deficit and manufacturing jobs), is wholly insufficient. 

In the Great Trade debate, like a lot of modern political debates on free trade or protectionism, the burden of proof was never established.  Griswold’s opening salvo provided a lot of great data, but never challenged the morality of Fletcher’s underlying position.  Without this challenge – without loudly impugning the morality of Flecther’s protectionism and demanding that he justify his regressive, immoral tax policies, Griswold left Fletcher free to simply rebut certain facts without ever actually justifying his own assertions that free trade causes economic harm and that widespread protectionism would cause prosperity.  As such, the debate devolved into a series of point-counterpoints, whereby each person debunked the other’s data.  

Indeed, Fletcher’s opening statement provides a perfect example of the problem.  He states:
The most recent scholarship on the issue casts huge doubt on traditional theoretical justifications for free trade and makes clear why the mercantilism that is being practiced against us can be such an effective economic strategy.  It is gradually realigning theoretical economics with both economic history and the common-sense experience of ordinary Americans.
Fletcher does nothing to actually prove such bold assertions.  He simply moves on to other, similarly-unsupported stances.  And his follow-up posts attack Griswold's positions without ever justifying his own.  As demonstrated above, however, such justification is very, very necessary, given that Fletcher is arguing for a massive wealth transfer from American consumers to manufacturers and farmers.  He must prove why we should support such a scheme.  Yet he never does.

And that's why Fletcher should have lost the Great Trade Debate instead of just running out the clock.  Hopefully next time, he won't be so lucky.


Anonymous said...

Fantastic advice.

Brett_McS said...

The exact same moral argument is useful against any and all government programs. The onus of proof is on those proposing to transfer wealth at the point of a gun.

Scott said...

I totally agree, Brett. The unfortunate thing about protectionism, however, is that the argument is rarely made (while it often is made for a lot of other govt policies). I discuss this a little bit in part II of this series.

Jeff said...


Are you aware of any research that suggests the common many actually prefer protectionism themselves? I think most people want to appear to support American manufacturing and agriculture, because it's such a mom-and-apple-pie issue.

I only ask because if the common many approve of the wealth transfer (it may costs pennies on the dollar per individual), then it isn't really coercive (though it could be masochistic). I doubt many Americans would support protectionism if they knew much about it. But they can rationally ignore the individual costs if they are nominal.

I morally oppose the privilege sought by protectionist through the political process, but I ponder the efficacy of free-trade advocacy.

Thanks in advance for your thoughts.

Scott said...


I'm not aware of any studies like that. However, with all due respect, I must disagree with your conclusions in the second para. That a majority agrees with the forcible wealth redistribution caused by protectionism does not make it any less coercice. If the common many wants to support domestic industries, they have every right to do so by buying domestically-produced products. They have no such right, however, to force me to do the same - i.e., to dictate how and where I spend my earned capital. Thus, even where a majority supports protectionism, it's still immoral and coercive.

You are, however, right about the concentrated benefits/diffused costs problem with protectionism. Indeed, Public Choice scholars use trade as a primary example of their theories of "government failure."

But, there are two important responses here: (1) free trade is above all a moral issue; and (2) the individual costs of protectionism, and benefits of free trade, are actually much greater than the anti-traders would have you believe. We're not talking about a few cents off a t-shirt here; we're talking thousands of dollars in consumer savings for each American family, as well as massive, yet admittedly unmeasurable, gains to the nation's overall economic welfare (through competition, innovation, etc.). One need only compare Michigan with Texas to understand the pernicious effects that anti-market policies have on overall individual welfare.

Anonymous said...

Great article.

I find hypocracy in many protectionists when it comes to the US placing trade embargos on other nations, for punishment, such as Cuba or N. Korea, but turn around and desire the same behavior done to them by not allowing free trade for themselves with others.


Anonymous said...

I have tried debating free trade on moral grounds, along the lines "what principle are you invoking to stop consenting adults from exchanging legal goods and services just because they live on the other side of a line on the map?".
I don't recall getting any half-convincing arguments in return.


Anonymous said...

good post...

juan carlos vera said...

I must say I found your article very timely. I have derived from it a note that I've written yesterday. It is likely that in writing my note, I have ommited the same kind of argument which I humbly think you ommited.

I have almost certainty that economic protectionism, now in vogue all over the world, is based on Keynesian theory. We know that Keynesian theory is false. This theory is purely mechanical and does not support the criticism: the world is Keynesian, period, the Keynesians say.

As a warning to the Keynesian fallacy, let me append this comment, three paragraphs derived from: The Pretence of Knowledge; Lecture to the memory of Alfred Nobel, December 11, 1974; Friedrich August von Hayek.

"...It seems to me that this failure of the economists to guide policy more successfully is closely connected with their propensity to imitate as closely as possible the procedures of the brilliantly successful physical sciences ­ an attempt which in our field may lead to outright error. It is an approach which has come to be described as the "scientistic" attitude ­ an attitude which, as I defined it some thirty years ago, "is decidedly unscientific in the true sense of the word, since it involves a mechanical and uncritical application of habits of thought to fields different from those in
which they have been formed."1 I want today to begin by explaining how some of the gravest errors of recent economic policy are a direct consequence of this scientistic error.

The theory which has been guiding monetary and financial policy during the last thirty years, and which I contend is largely the product of such a mistaken conception of the proper scientific procedure, consists in the assertion that there exists a simple positive correlation between total
employment and the size of the aggregate demand for goods and services; it leads to the belief that we can permanently assure full employment by maintaining total money expenditure at an appropriate level. Among the various theories advanced to account for extensive unemployment,
this is probably the only one in support of which strong quantitative evidence can be adduced. I nevertheless regard it as fundamentally false, and to act upon it, as we now experience, as very harmful.

This brings me to the crucial issue. Unlike the position that exists in the physical sciences, in economics and other disciplines that deal with essentially complex phenomena, the aspects of the events to be accounted for about which we can get quantitative data are necessarily limited and may not include the important ones. While in the physical sciences it is generally assumed, probably with good reason, that any important factor which determines the observed events will itself be directly
observable and measurable, in the study of such complex phenomena as the market, which depend on the actions of many individuals, all the circumstances which will determine the outcome of a process, for reasons which I shall explain later, will hardly ever be fully known or measurable. And while in the physical sciences the investigator will be able to measure what, on the basis of a prima facie theory, he thinks important, in the social sciences often that is treated as important which happens to be accessible to measurement. This is sometimes carried to the point where it is demanded that our theories must be formulated in such terms that they refer only to measurable magnitudes..."

This theoretical aspect pointed out by Hayek seems very important because one is convinced that there is strictly a fallacy. In implementing economic policy using a theoretical fallacy one can reach any result: almost all of them immoral ... I think.

Scott said...

It's a really good point. I've often lamented the intellectual hubris of our political class and its deleterious effects on the economy.

Anonymous said...

To borrow a favorite tactic used elsewhere these days, the argument might go like this:

1. You propose protectionist tariffs on China. Those tariffs will hurt that country's ability to create jobs for a nation that is incredibly poor.
2. It sounds to me like you are a racist.
3. It will also decrease the amount of capital in the USA.
4. Do you not believe investment in the USA creates jobs?