Why Public Support for Free Trade Will Collapse Soon

For once, some good news: public support for free trade will almost certainly collapse over the next few years. On this issue, the public is way ahead of the political class in the quality of its thinking, and the average hardware store owner in Nebraska understands the real economics involved better than the average U.S. Senator.

Public opinion certainly continues to turn against free trade: an NBC-Wall Street Journal poll in September 2010 found 53% of Americans believing free trade agreements hurt the U.S., with only 17% believing them beneficial. (The split had been 30% vs. 39% in the dot-com boom year of 1999.) 86% named outsourcing to low-wage nations the key cause of America’s failure to emerge fully from recession and create jobs, significantly outranking choices like the federal deficit. The turn against free trade was sharpest among the affluent and cut across boundaries of class, region, and political affiliation.

As of early 2011, there are four missing prerequisites for free trade to explode as an issue and collapse as a policy:

1. Everyone is still preoccupied with the financial crisis, its aftermath, and recovery from recession, especially job recovery.

2. There remains a residual sense in the minds of the public and the lawmakers that somehow free trade, despite all its problems, is still sound economics, and that perhaps we should just keep on eating our spinach because it will be good for us in the end.

3. There is no obvious alternative policy on the table. There is instead a grab bag of issues, ranging from Chinese currency manipulation to the proposed Korea, Colombia, and Panama free trade agreements. This paucity of credible alternatives feeds the defeatist attitude that nothing fundamental can be done, which feeds apathy.

4. A specific crisis has not happened to force the system out of its old way of doing things as the debacle in subprime mortgages upended our financial system in 2008 and made continuation of prior policy impossible whether anyone wanted it or not.

For the first prerequisite above to be supplied, all it will take is time, as recessions, even double-dip recessions (?), always eventually end, and the financial crisis of 2008 was successfully patched (albeit at astronomical cost and without fixing its underlying causes, risking a repeat).

For the second prerequisite to be supplied, all it will take is sufficient public debate, between persons perceived as credible, for free trade to become established in the public mind as an issue with two legitimate sides to it. As the reader has hopefully gathered from my column by now, once one seriously scrutinizes the underlying economics of free trade, even if one is not disabused of the policy outright it becomes hard to deny that it is a legitimately controversial issue. The pure “100 percent free trade with 100 percent of the world 100 percent of the time” position is simply not intellectually serious. (Free traders will, of course, respond that none of them actually believe in literal 100% free trade. The reader may judge whether the various kinds of 99% free trade they believe in are significantly different.)

So when public debate finally cracks open, free trade will lose its innocence very fast.

Once protectionism is perceived as a legitimate choice, it will become the actual choice of large numbers of people whose protectionist instincts have been held back by the belief that it is somehow an ignorant position to take. They will not need to master the details of why it is legitimate; they will only need to know that it is legitimate.

Sen. Sherrod Brown (D-OH), one of the leading opponents of free trade in the Senate, reports that ever since he came to Congress in 1993, every free trade vote has been accompanied by predictions by the White House of economic disaster if it was not passed. Trade wars, stock market decline, and recession were predicted every time. The power of this rhetoric to intimidate is going to end. “Protectionist” will cease to be a canard and become just another policy option.

The third prerequisite above (no obvious alternative) can emerge overnight if some major political figure launches a tariff proposal that captures the public’s imagination. Or the myriad individual issues that currently comprise the opposition to free trade could force the soldering together of an omnibus proposal on the floor of Congress.

The fourth prerequisite (a sudden crisis) is difficult to predict as to time, but we can rely securely upon the fact that unsustainable trends are always, in the end, not sustained. At some point, America’s giant overdraft against the rest of the world must come to an end. Although our government is trying to postpone the day of reckoning as long as possible, this day will come. Secretary of State Hillary Clinton flying to China to beg its government to keep buying our bonds (as she did in February 2009) won’t make much difference in the end.

Once protectionism is conceded to be a valid political position, it will eventually win the public debate, if free trade’s unpopularity continues to mount at the pace it has been mounting over the last 10 years. And this pace is, if anything, likely to accelerate.

When this happens, the status quo will be sustained only by the tacit bargain of the American political duopoly, in which the two parties agree not to make trade a serious issue, whatever tactical feints they may deploy. This corrupt bargain will hold as long as the benefits of keeping it, which mainly consist in keeping the corporate backers of both parties happy, exceed the benefits of defecting from it, which consist in winning votes.

Once one party defects, protectionism will, if rationally designed and competently implemented, almost certainly be sufficiently successful in practice (and therefore popular) that the other party will have no choice but to follow. The alternative, if one party insists on handicapping itself by clinging to an unpopular position on such a major issue, is an era of one-party political dominance like 1860-1932 or 1932-80.

Make no mistake: we are heading for a big economic paradigm shift here.

[Minor note: the 2011 edition of my book http://www.freetradedoesntwork.com just came out.]

Ian Fletcher is Senior Economist of the Coalition for a Prosperous America, a nationwide grass-roots organization dedicated to fixing America’s trade policies and comprising representatives from business, agriculture, and labor. He was previously Research Fellow at the U.S. Business and Industry Council, a Washington think tank founded in 1933 and before that, an economist in private practice serving mainly hedge funds and private equity firms. Educated at Columbia University and the University of Chicago, he lives in San Francisco. He is the author of Free Trade Doesn’t Work: What Should Replace It and Why.

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