Why Libertarians Are Wrong on Free Trade

by Ian Fletcher

I recently gave a podcast interview to Vox Day, a prominent Christian libertarian, explaining why free trade is bad for America. He followed it up with an article making many of the same points.

Finally, a libertarian gets it.

This did not go over well with some of his followers.

I'm not qualified to speak to the "Christian" aspects of free trade -- whatever those are -- beyond observing that globalism, of which free trade is a part, certainly looks like the Tower of Babel. But as one prominent libertarian has now seen through the free trade delusion that generally grips his fellow libertarians, this is probably a good time to explain what he got and they didn't.

The libertarian defense of free trade can get as complicated as anything in technical economics, but at bottom it comes down to ideas like this, which one can read all over the place in the comments posted after my articles -- and now Vox Day's:

"What right do you have to tell me who I may and may not buy things from?"

At first blush, that's quite a challenge. Many libertarians certainly seem to think it's decisive. It's certainly a snappy quote.

But it's wrong.

Let's start by noting that I am not claiming any right at all. Protectionism, if implemented, wouldn't be implemented by me. It would be implemented by the U.S. Government, and would be legitimate -- if it is legitimate -- for the same reasons all our other legitimate laws are legitimate:

We have Constitution and a democratic process, and that's where laws come from.

Some libertarians prefer to call themselves constitutionalists, so it is worth pointing out that Article I, Section 8 of the Constitution explicitly gives Congress the right "to regulate commerce with foreign nations."

The second point in answer to the libertarian challenge stated above is this:

This isn't just about you.

Like it or not, even a capitalist economy is a system in which your actions affect other people. Your freedom to swing your fist ends, famously, at the tip of my nose, and what you buy and don't buy affects other people.

Even more importantly, your own economic actions don't mean anything except in the context of a system that you didn't create. You don't enjoy the income you enjoy -- which is what gives you the very ability to buy things disputed above -- solely because of your own efforts. You enjoy that income because, among other things, you were born into a society which had a per-capita GDP of $47,000 during your working lifetime.

If you'd been born in medieval Afghanistan, it would be a very different matter. And not because of anything you personally can claim credit (or deserve blame) for.

So you can't claim that what you've got derives solely from your own efforts and that you are therefore entitled to do what you like with it. Robinson Crusoe can claim absolute economic freedom; you can't.

None of this is to deny that a reasonable amount of economic freedom is a good thing. But you get into trouble when you elevate it, like any other good, into an absolute. Try absolutizing national security, traditional values, law enforcement, self expression, religious piety, intellectual sophistication, social order... get my point?

Here the plot thickens, because the nature of this economic system we are all a part of is the real key to why free trade doesn't work even within libertarian assumptions.

The libertarian economic model is a model based on free markets. That is, it is based on the idea that free market economics describes both the way the economy is (insofar as it works well) and the way it should be.

The key idea of this free market economics is equilibrium. That is to say, free market economics holds that if market forces are allowed free play, then the prices and production of things will reach natural equilibria that are the most efficient outcome that could exist.

To a huge (but not total) extent, this is true. (I studied economics at the University of Chicago; trust me, I know this story.)

But there's a catch. Equilibria only balance properly if nobody puts a "thumb on the scale" anywhere in the economic system and distorts it. If that happens, then all bets are off about the outcome being efficient at the level of the system as a whole.

All bets are also off -- this is the key -- about any individual "free" market decision being valid. Why? Because the market isn't free anymore. You can't play by free market rules when you're not in a free market.

Try playing fair when the game is rigged. That's not fairness, it's suicide.

Unfortunately, there are a million "thumbs on the scale" in international trade right now. All of these distort market forces, so even if pure-free-market economics is right (it isn't, but that's another story), libertarian economic conclusions don't follow.

How are markets distorted in trade? Don't get me started. To name just a few ways:

  • China manipulates its currency. So does Japan, Germany, and a few others.
  • China keeps American goods out of its markets. So does Japan, yadda yadda yadda, albeit more politely.
  • China subsidizes (contravening its own WTO treaties) its industries in ways ranging from cheap credit to free land.
  • China steals American intellectual property. (Germany and Japan mostly quit doing this long ago, largely because they now have a lot of intellectual property of their own to protect.)
  • China uses slave labor. Even its non-slave labor is regimented in ways unimaginable in the U.S.

As a result, someone who buys cheap foreign goods isn't exercising a free choice, they're just taking advantage of someone else's utterly coercive subsidy. The price system can't tell the difference -- cheap is cheap -- and that's why people make this choice thinking they're practicing freedom. But the slaves keep on sweating. And the money changers keep cheating. And all the rest of it.

Whenever libertarians buy foreign goods that are cheaper because of all these practices, they encourage them.

And that actually diminishes, rather than increases, freedom.

So even from a libertarian point of view, free trade is a losing move.

In Fletcher is the Author of  'Free Trade Doesn't Work: What Should Replace It and Why'