No political group is doing more to save face these days than free trade advocates. According to the Merriam-Webster Dictionary, “save face” equates “to avoid having other people lose respect for oneself.” The Oxford English Dictionary defines “save face” as “retain respect; avoid humiliation.”
Free traders today are busy trying to save face in the current era of successful protectionist policies, which free traders predicted would crash the economy and revisit the Great Depression, among other claimed catastrophes – none of which ever came true, of course.
According to free traders, tariffs were supposed to raise prices to levels that would decimate consumer spending, which didn’t happen. However, what did happen was the Fed’s eventual raising of interest rates. And even though this did cause consumer prices to rise in many areas (but not all), the job market is so strong that jobs are plentiful, prosperity is advancing, consumer confidence is high, and manufacturing is strong.
Economic dislocation in the U.S. from free trade and globalization has made the old-style version of free trade deals a losing proposition in many politicians’ eyes.
Speaking in a trade subcommittee hearing on September 20, 2023, about renewing the Generalized System of Preferences (GSP), House Ways & Means Committee Chairman Jason Smith, R-Mo., said, “Our trade policy should support American jobs at any opportunity.”
U.S. consumers, who continued to ramp up spending on material goods during the COVID-19 pandemic, still haven’t looked back. Free trade-leaning economists are still wondering how long the increase in spending will last. Until then, they are still trying to find ways to save face.
In response to former U.S. Senator Phil Gramm’s September 12, 2023, Wall Street Journal op-ed “Trump’s Trade War Was a Loser,” former U.S. Trade Representative Robert Lighthizer rightly stated, “the Section 301 tariffs on China reduced our dependency on a global adversary.” Manufacturing employment increased from 2017-2019 (before the pandemic hit).
Gramm also makes the ludicrous claim that “countries are better off running trade deficits,” which Lighthizer rightly responds is a “policy that would lead you to bankruptcy in your personal life.”
In April 2023, Procter & Gamble Co., maker of Tide detergent and Pampers diapers, tested shoppers’ tolerance for increasingly higher prices and found that consumers are still willing to pay up.
Also, in April 2023, General Motors Co., citing the willingness of consumers to spend more on higher-end models, raised its outlook for full-year profit.
According to a July 17, 2023, Wall Street Journal article, paychecks for American workers have now exceeded inflation – an unfortunate development for free traders willing to cling to their failed orthodoxy.
I’m not a huge Janet Yellen fan, but I was happy to see her say that “protecting national security would be the U.S. priority in its relationship with China even if it slows economic growth.”
Free traders could never get on board with such a stance. To them, it is all about low prices as an end to stimulate economic growth. It doesn’t matter to them if China surpasses the U.S. as the world’s number one superpower. It’s all about free trade and freedom to trade overall. To them, there is no “Finding the balance with China between defending national security and encouraging economic growth,” as Janet Yellen put it.
With the stock market at its best winning streak since 1987, even in the face of rising interest rates hiked by the Federal Reserve, it turns out that higher interest rates are not anti-business, anti-growth, or anti-stock market gains. Neither were tariffs.
We could have had higher prices due to tariffs, reaped benefits for the national economy, and still had this winning streak in the stock market. The outlook for the economy is good even with higher interest rates and inflation because people have money in their pockets and are able to spend.
Federal Reserve Chair Jerome Powell said on October 19, 2023, that the economy is handling high-interest rates (including home interest rates over 8%). The free trade camp doesn’t see this as a considerable economic concern. But they do see a problem with former President Trump’s proposed 10% tariff on all imports if re-elected. Never mind that the Tariff Act of 1789, which President George Washington signed into law on July 4, 1789, imposed a tariff of 5 percent on the majority of dutiable imports for the encouragement and protection of manufacturing in America.
For the next one hundred and twenty-five years, tariffs on imports provided 50 percent to 85 percent of all revenue required to run the federal government.
Free traders also fail to recognize that the unemployment rate was 6.3% when President Biden took office and has been at 4% or less for 22 months in a row. And Biden kept the overwhelming majority of the Trump tariffs on imports, including all the tariffs imposed on China.
On July 17, 2023, a Wall Street Journal article titled “Pay Raises Are Finally Beating Inflation After Two Years of Falling Behind,” detailed that wages rose more than 4% while consumer prices increased 3%.
The difference between free trade face-savers and otherwise objective Americans can be described by Nobel Laureate Angus Deaton, who says in a BusinessWeek magazine edition on October 9, 2023, that his own views have flipped. According to the article, “Mr. Deaton believes nothing…exemplifies how economics has gone awry more than the epidemic of deaths from alcoholism, opioid overdoses and suicide that has hit the American working class in recent decades. He believes one primary cause of that surge was economists’ enthusiasm for globalization, with its emphasis on the unfettered movement of goods, capital and jobs.” Deaton says, “You can’t think about trade policy and think about money entirely. It’s people’s souls and their communities and their churches and their lives” that are at stake when jobs are dislocated.
Protectionist Pat Buchanan used to be a free trader. So did Sen. Marco Rubio. Former House Speaker Newt Gingrich admitted he was wrong on China in his 2019 book, in which he stated, “I decided I really wanted to put together a book — partly for myself — but also because I thought it was useful to have somebody who had been part of the consensus on China to say, ‘Wait a second, here’s what went wrong, here’s people like me to change their opinions and this is how big the challenge is going to be.”
The bottom line is that free traders are making an embarrassing saving-face attempt in an era of high tariffs, resulting in a lower unemployment rate, higher wages than prices, and higher consumer spending despite record inflation and high-interest rates.
British economist John Maynard Keynes once said, “When the facts change, I change my mind. What do you do, sir?” But free trade face-savers can’t bring themselves to do that in the light of a successful economy with relatively high tariffs.
Many free traders know they are wrong in pushing free trade and free markets and their potential economic injury to our country, but they simply cannot stop peddling their face-saving lies.