Commentary
Both major political parties in the United States appear to have shifted away from the concept of free trade. The notion of free trade, much like free immigration, has faced challenges and skepticism in recent times, leading to a reevaluation of trade policies globally. This marks a significant departure from the efforts made over the past 70 years to reduce trade barriers and promote globalization.
It is important to delve into the reasons behind this shift. In many cases, the failure of the implementation and the exploitation of the original idea have led to its discredit. This pattern has been observed in various fields such as medicine, law, government, media, and technology, where mismanagement has tainted the entire concept.
The commitment to free trade emerged in the mid-1930s as a response to the belief that trade barriers worsened the Great Depression in 1932. Following World War II, there was a consensus among diplomats that peace could be achieved through trade, as nations that engage in trade are less likely to go to war.
Subsequently, the General Agreement on Tariffs and Trade (GATT) was established as a temporary solution, with plans for a Global Trade Organization being put on hold due to concerns about national sovereignty. However, GATT was plagued by political influences from its inception, restricting membership and favoring certain nations.
Despite these limitations, global tariffs gradually decreased over time. In the 1990s, the United States pursued regional trade agreements like NAFTA, which deviated from true free trade by introducing subsidies and regulatory complexities. Similarly, the World Trade Organization (WTO) was marketed as a proponent of free trade but actually extended bureaucratic control.
The rise of China in the manufacturing sector led to significant shifts in the U.S. economy, causing disruptions in various industries. While proponents argued that such changes were inevitable in a globalized economy, concerns arose about the impact of free-floating exchange rates and the accumulation of U.S. debt by foreign nations.
This economic landscape diverged from the principles of classical economists like David Hume and Adam Smith, who advocated for sound money based on gold. The modern system, characterized by fiat currency and financial imbalances, raised questions about the sustainability of trade practices and the long-term consequences for domestic economies.
Classical economic theory emphasized the balance of trade as a self-regulating mechanism, where gold flows would adjust prices and bank lending to maintain equilibrium. This principle, rooted in real-world observations, guided trade policies in the 18th and 19th centuries, ensuring stability in international commerce.
But let’s not forget the underlying premise: all world currencies were essentially different names for the same thing – gold. Money was backed by gold and nothing else. As a result, nations’ account balances reflected this for a long time, with the United States running no long-term “trade deficits” under the gold standard.
The Bretton Woods gold standard collapsed in 1971, leading to the disabling of mechanisms put in place during the Hume era. This allowed for unlimited credit expansion, as central banks could now print money to fund government debt expansion.
With the demise of the Bretton Woods system, domestic monetary policies lost their financial discipline. Trade deficits no longer resulted in a loss of gold and subsequent reduction in domestic credit. Instead, the lack of limits on credit expansion led to inflation and other economic imbalances.
In the fiat world of the late 20th century, accounts were never settled, leading to benefits accruing to the elites of major nations at the expense of the people. This distortion in trade dynamics caused industrial upheaval, driving down wages and creating opportunities for global industrialists to exploit cheap labor worldwide.
The system lost its self-management capabilities, resulting in the decline of industries such as textiles, steel, and automotives. The nation faced challenges in business creation due to high taxes and regulatory controls.
The problems were not solely due to free trade, as trade agreements like NAFTA, the EU, and the WTO were actually managed trade agreements. The dollar-based fiat money system exported U.S. debt expansion globally, sustaining unsustainable industrial expansions in foreign countries.
Tariffs are not a sustainable solution, as they tax domestic production and consumption, leading to conflicts and diplomatic breakdowns. While defending free trade is important, the focus should be on improving the quality of money and its control for the benefit of the people.
It is essential to address these issues to restore balance and ensure a fair and prosperous global economy. Can you rewrite this sentence for me?
Source link
