November 27, 2016
The Origins of American Free Trade
The early American colonies were viewed by the English Crown as convenient for two purposes—advantageous trade and the disposal of uncompliant riff-raff. The trade model followed by Great Britain later became known as mercantilism. These mercantilists believed that economic growth was caused by preferential exchange. The colonies delivered raw materials, English merchants refined them, provided the means of transport and banking. The idea was that while the colonies remained poor, the English would prosper from this arrangement.
To provide labor and secure these colonies, the Crown delivered upon these shores those men and women who were inconvenient to law and order. First came those whose religious feelings were deemed a threat, then came petty criminals, and in the final tranche of colonial humanity came the soldiery to make war on the French and Indians.
Along the way something unexpected happened. The colonies grew rich and these unschooled, unwashed, itinerant masses became capable of self-rule. In the salutary document of sovereignty, our Constitution, these former colonial riff-raff took steady aim at Mercantilism. They knew full well that the barriers to trade between colonies were designed to suppress commerce and liberty. So, our Constitution, through the Interstate Commerce Clause (Article I, Section 8), forbade individual states from restricting trade.
The United States of America thus became the first free trade zone. One meaningful result of this is that our economy stands in stark contrast to those who have long restricted trade. Take for example India and China. The poverty line in the United States is $11,770 for one person, while the per capita GDP in India is $1,498 and $6,807 in China. Even the poorest Americans are upper middle class Chinese and ultra-rich Indians. Trade wasn’t the only factor, but unrestricted interstate commerce made us far more productive and prosperous. The absence of trade has held back China and India, and we should be glad for them that they’ve embraced trade so fully in the last generation.
Today there is a push to severely restrict trade. Many Americans believe that international commerce has resulted in net job losses in the US. These people are wrong in the sort of flat-earth, germs don’t cause disease sort of way. They are immune to the simple facts such as US manufacturing employment actually rose in the six years following NAFTA or that 2015 was the record US manufacturing production year (and yes, that is in inflation-adjusted dollars). But, it is helpful to admit there is something to be gleaned from their complaint.
Free trade makes us better off in many small ways, whether it is with Illinois or India. On average we are all better off, but some of us are more better off than others. And that is what fuels the misanthropy about trade. If you sell a service overseas, like software or movies, or if you manufacture a highly technical product like orthopedic joints or advanced avionics, trade is a panacea. Trade is also great if you produce agricultural products cheaply, like all those row crops in the Midwest. Trade is good for the part of all of us that are consumers, because it gives us more variety at a lower price.
If you live where there are low productivity factories, trade hurts. It doesn’t hurt as much as automation and robotics, but it still imposes the pains of decline, population loss and the visible scars of the rust belt. Moreover, workers in low productivity plants typically have fewer re-employment options, and are clustered in large numbers. The bad of trade is easy to see, the good is less visible. This fact animated a good part of this election, and remains a central issue for the next president and Congress. In addressing it, they must not lose sight of the role trade played in our prosperity.
About the Author
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