This is a response to a critique of the doctrine of free trade published on this blog a few months ago by an author writing as Bryan Mercadente. While the author stated that the piece was not intended as a response to my earlier article on similar subject matter, I thought, given that he was kind enough to reference me by name, that a reply would nonetheless be appropriate.

Ideally, I would have preferred to have posted this sooner. However, at the time I was busy drafting a series of articles on Artificial Intelligence, and with available time being regrettably limited, I’ve only now been able to write this up properly. The topic, however, remains timely.

UPDATE: The same author has recently published a further essay on this topic, which is reasoned a little better and may ameliorate some of my critique below. Nevertheless, as he has retracted nothing, I shall retain my comments as directed at the first article while concluding with some acknowledgments towards the second. Further, as yet another author has responded to this second article, I will focus more specifically on economic method and how one should apply it to the question of free trade. I may respond to Mercadente’s specific policy proposals in a more wide ranging essay on national statism.

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Usually, pieces that begin with the notion that the economic case “doesn’t matter” move in one direction of travel: economics does matter – it is simply an obstacle to the author’s preferred vision and must be pushed aside. It’s like wanting to design a plane while finding gravity to be a bit of a nuisance. Ignoring it goes pretty well until you fall out of the sky.

What follows in the essay is a wide-ranging trial of “free trade,” prosecuted almost entirely on the basis of its empirical associations and political utility, rather than through any attempt to apply its core meaning. While the theoretical case is acknowledged briefly and without objection (albeit the classical, collectivist, nation-centric case rather than the Austrian), the essay quickly pivots to frame “free trade” as a rhetorical decoy – a false flag for oligarchy that, in the author’s view, has operated more or less uninterrupted since the nineteenth century:

This is the context in which “free trade” must be judged. Not as an abstract doctrine, but as a political instrument. And the reality is this: in the hands of our current elites, free trade is not freedom. It is a mask for domination.

This apparent revelation is neither new nor especially remarkable. Throughout history, power has repeatedly cloaked itself in the language of its supposed opponents – co-opting legitimate concepts and institutions to serve illegitimate ends. The divine right of kings, the rule of law, capitalism, patriotism, “human rights” – all of these began as bulwarks against tyranny, only to be repurposed as instruments of it. In each case, what was once a check on power becomes a façade for it, the moral sheen dulling the public’s instinct to resist and lulling them into mistaking rot for strength.

In fact, the term “libertarian” had to be invented into common use to distinguish those still loyal to liberty from those flying the tattered flag of “liberalism” – now diluted to either a meaningless sprawl or a complete inversion of its original sense.

The persistent obsession with “free trade” is much like the Egyptomania surrounding King Tutankhamun – a relatively minor figure who, thanks to circumstance, is now the face of his civilisation. In strict terms, “free trade” refers only to the absence of one type of restriction – those applied at national borders. Within the wider corpus of economic theory, it is just one illustrative case of how taxation and regulation distort production and exchange. Its enduring prominence owes itself not to any earth shattering insight, but to its timely usefulness in a centuries-long ideological struggle over trade policy.

This legacy of dominance has morphed “free trade” into a giant misnomer. International treaties and trading blocs that remove tariffs are routinely labelled “free trade” on account of that narrow element of liberalisation. But they impose vast regimes of taxes, subsidies and regulations in their place. The outcome is not the elimination of trade restrictions, but their repackaging into more subtle and destructive forms under the cloak of freedom – all in a milieu of paper money which probably does more than anything else to foster the specific trade imbalances. The author is therefore right to recognise this kind of terminological inflation:

There is nothing “free” about trade between a tightly regulated British firm and a Chinese sweatshop subsidised by state surveillance and artificially suppressed energy prices. There is nothing “efficient” about importing fruit from Peru and electronics from Malaysia while leaving entire British towns to rot. There is nothing “natural” about an economy whose entire structure is the outcome of political manipulation—of interest rates, of subsidies, of regulations, of foreign policy.

Worse still, these arrangements are often championed by self-described “free marketeers”. The result is a conflation between managed, cartelised statism and the genuine voluntary exchange that takes place between individuals across borders. Once this Frankenstein economy implodes, blame is heaped onto the kernel of freedom, leading to the suggestion that tariffs are the remedy. It’s no different from how every domestic calamity and catastrophe, caused upstream by heavy state interference, is blamed on the visible, surface actions of banks, companies, etc. behaving “freely”. As such, libertarians should stop parroting “free trade”, or defending the status quo, without considering the underlying conditions of hampered market operations, and the very real problems they cause.

So for the sake of argument, I’ll grant that this particular critique – the misuse of free trade rhetoric by entrenched interests – is entirely justified. Indeed, it seems improbable, for example, that Tony Blair slithered from his lair to condemn Trump’s tariffs out of any real concern for working people.

However, the uses and abuses of that principle – however revealing – have no bearing on its conceptual relevance.

Suppose, for example, a deranged leftist came to you with the following argument:

Free speech, as interpreted since about 2010, is not a system of open dialogue. It is an ideological weapon. It is used to justify racial harassment, the erosion of equality, and the entrenchment of systemic oppression with no empathy, no accountability, and no regard for social justice. The same class that tells us “free expression” is necessary also tells us that LGBTQ+ is a mental illness. The same class that defends “the exchange of ideas” also defends the idea that the rights of minorities must be sacrificed on the altar of the morally privileged heteronormative patriarchy.

Now consider the following paragraph from the Mercadente piece:

Free trade, as interpreted since about 1975, is not a system of voluntary exchange. It is an ideological weapon. It is used to justify the demolition of national economies, the devaluation of citizenship, and the entrenchment of a new ruling class with no homeland, no loyalty, and no sense of obligation. The same class that tells us open borders are economically necessary also tells us that national identity is a moral disease. The same class that defends “comparative advantage” also defends the idea that your nation’s traditions, industries, and cohesion must all be sacrificed on the altar of efficiency.

If we wouldn’t accept the first set of sweeping associations and post hoc reasoning as serious criticisms of free speech, there’s no reason to treat free trade any differently. That elites have co-opted the rhetoric of “free trade” for corrupt purposes tells us nothing about whether free trade itself – as a consequence of voluntary exchange – is the relevant cause of the outcomes we see in the real world.

This distinction matters. If we can’t separate relevant causes from mere preconditions or carriers, we end up targeting the wrong things. Drunk driving wouldn’t happen without roads – but nobody sane thinks the solution is to rip up the tarmac. Organised crime uses cash, but that’s not an argument against money. Every evil act that has ever been committed required food and oxygen to sustain the perpetrator – should we condemn breathing?

In this particular instance, our first port of call is to identify the precise causal element we are examining – to unscramble that “terminological inflation” we mentioned earlier. Trade restrictions at borders is what we mean by “free trade”, nothing more. The author’s note that global shipping lanes are propped up by American military power may well be an interesting adjunct. But in clarifying the concept it’s about as relevant as pointing to Britain’s state owned road network when discussing the effects of VAT.

Now that we have identified the factor we are interested in, we then need to trace the effects of that element. It’s here where the author’s explanations become especially wanting:

This is not to say that free trade brought no benefits. It did. But its benefits were uneven, and its advocates were rarely disinterested. By the late nineteenth century, Britain remained formally committed to free trade, even as its rivals—America, Germany, and Japan—built their industrial power behind high tariffs and state-directed investment. These countries grew. Britain stagnated in relative terms. Still, the rhetoric of free trade persisted.

Assuming these relative rates of industrialisation are correct, they raise a cascade of questions. Did Britain stagnate because of free trade – or in spite of it? Did America, Germany and Japan industrialise because of protectionism, or despite it? Did they build the industries their people actually wanted, or were tariffs used to rig production in favour of the politically connected? Could they have industrialised faster – or in more beneficial directions – had they not shut out foreign markets? What other forces were at work? What caused what, and how do we know?

Cherry-picking outcomes from nations with vastly different legal, monetary, demographic and institutional contexts tells us very little unless we apply a theoretical lens that can isolate causal mechanisms. Without that, you’re just drawing post hoc conclusions from national biographies and calling it analysis.

This is where correct application of economic theory becomes essential. Yet while the author acknowledges that “economic analysis is a tool,” his attitude is basically one of dismissal – one that would be absurd if this were any other science:

Free trade lowers prices. It creates incentives for specialisation and innovation. It discourages domestic monopolies and restrains rent-seeking. If pursued consistently, it also makes war more disruptive, by intertwining the economies of states that might otherwise be enemies. These are all real advantages. But they are no more decisive in practice than the theoretical case for abolishing income tax and closing down the central banks. The world is not arranged according to economic logic. Nor is policy.

This is like saying that, because gravity is not “decisive” to the flight of a plane, the “world is not arranged” according to the laws of physics. Especially for practical, or goal-driven analysis, it isn’t helpful to frame scientific laws as conditional statements valid ceteris paribus, dependent on laboratory conditions in order for their effects to be realised. Rather, they are best thought of as counterfactual propositions valid in every relevant situation.[1]

For example, increasing the weight carried by a racehorse will tend to make it run slower than it otherwise would regardless of the terrain it has to traverse or the skills of the jockey. If, therefore, we are reducing the weight but the horse does not speed up, we would look to other factors for the source of the problem. Crucially, no one in his right mind would suggest we should start piling the weight back on.

So turning to economics, if the supply of money decreases, prices will tend to be lower than they otherwise would be regardless of other monetary and economic conditions. If prices do not fall, then some other factor must be offsetting the decrease in supply of money. So if our goal was to lower prices, we wouldn’t restart a policy of inflation.

Similarly, reducing taxes on acts of production will tend to make production higher than it otherwise would be regardless of however else the economic landscape has been distorted. So if we were lowering taxes but production was still stagnant, we would look to see what other roadblocks are in the way. We wouldn’t start raising taxes again because “experimenting” with lowering them has apparently failed.

In other words, each economic law describes a factor that pushes in a particular direction. None of them means their described effects must be perceptible in every case any more than a plane must drop out of the sky because of gravity – it just means that the pressure is there.

And so it is with free trade. If, in the author’s words, free trade “discourages monopolies”, “restrains rent-seeking”, and “makes war more disruptive” – but we still have monopolies, rent-seeking, and war – it does not follow that “the world is not arranged according to economic logic”. It just means that – in the same way lift offsets weight so a plane can fly – those effects of free trade are outweighed by counteracting causes. The right response therefore isn’t “free trade is broken!” but: what are the counteracting causes?

In the past forty years, we have built an economy where one part of London earns like Manhattan, and much of the North lives like post-Soviet Moldova. The wealth exists, but it is walled behind postcodes and connections. Those who lost their jobs in the 1980s were told to retrain. Retrain as what? There are only so many roles in marketing. The man who built turbines is not going to “upskill” into strategic PR consultancy. He is going to become obsolete—and then be blamed for it.

This is where the free trade debate collapses. The abstract logic is sound. But the social cost is dumped on those with the least power to avoid it. Under normal conditions, market shifts cause disruption. But the market also supplies compensations—new industries, rising wages, geographic mobility. In a healthy nation, people move from farm to factory, from factory to factory, from factory to office, and everyone rises together.

That is not what has happened. [emphasis added]

But if the “abstract logic” is sound, and yet conditions are not “normal”, then it follows that the relevant explanatory factors must lie in those abnormal conditions. If the outcomes are corporate dominance, financialisation and social demoralisation, then the obvious culprits are monetary distortion, legal privilege, welfare statism, excessive regulation, and similar distortions – precisely those I identified in my own recent article. The author, too, mentions some of these, and even expresses a desire to address them. Yet, in his account, they are demoted to mere “context” within which free trade is to be “judged”. But why is it free trade that is on trial?

Suppose that the heads of cartelised industry were running around yelling “We must increase production to reduce prices!” as part of their scheme to consolidate power. The motive is contemptible. But if prices nonetheless failed to fall, we wouldn’t rant at the law of supply and demand. We would indict the cartelisation.

Similarly, whenever anything has been used to enrich the wrong people, control the masses, or justify obscene abuses – law, banking, money, education, charity, science, journalism – we don’t stand those institutions themselves in the dock. We don’t blame education for indoctrination, law for a corrupt judiciary, or aeronautics for killer drones. We try (at least in theory) to identify and correct the interference, the distortion, the incentive perversion, so that these things may carry on as they should do.

A rigorous grasp of economic theory is therefore essential for identifying the true causes behind the very real grievances driving the renewed call for tariffs and protectionism – namely, the distorted international division of labour and the emergence of hollowed-out, financialised, consumer-heavy economies in the West, with industrial capacity now rooted in the East. Without theory, we’re simply describing the colours. But to understand the spectrum – and, crucially, to respond with the right policy – we must pass those conditions through the prism of economics.

Tariffs, it should be remembered, are paid for not by foreign exporters, but by domestic businesses and consumers who prefer to import foreign goods either as factors of production or as finished consumer goods. If we have identified – as the above analysis does – that free trade cannot be the cause of artificially induced domestic deindustrialisation, then increasing protectionism cannot be the answer regardless of whichever other economic distortions are in play. Forcibly making it more expensive for your domestic citizenry to source the goods they value most highly is simply another distortion being heaped on top of the actual problems, which will hamper, not help, the desired outcome.

In his second essay on this matter, Mercadente is, of course, correct to point out that economics is a value-free science that does not independently demand specific courses of action. One has to start with a goal, or a value proposition, and then use economic understanding to guide actions in achieving that goal. Thus far, I’ve been assuming that greater, general liberalisation as a route to increasing domestic production (while leaving the precise configuration to the market) is the goal.

But what if, as Mercadente suggests, a budding national statist was to say: “OK, I understand all of these arguments. But I’m not content to leave national reindustrialisation to policies of liberalisation. I definitively want a national steel industry, a national coal industry, a national car industry, and all of their inputs to come from nationally sourced raw materials – even if my citizens prefer to purchase some of these things from abroad. And I’m going to use tariffs to achieve that.”

How would we respond to this?

Well, with the same stricture that Mercadente applies to the free traders: that, like the effects of free trade, the notion that tariffs stimulate domestic production is also an economic law that does not exert its influence in vacuum or on a “clean whiteboard”. There are other factors to consider that may reduce or nullify the effect. Indeed, if we are being told to “judge” free trade within the “wider context”, then so too must we “judge” the imposition of tariffs by reference to whatever else is going on. And yet Mercadente doesn’t seem to be quite so keen to take the proponents of tariffs to task for this omission.

So what is that wider context? One element is that reindustrialisation takes time. Domestic raw materials don’t extract themselves; infrastructure doesn’t build itself; and you can’t reassemble an economy like rewinding a VHS tape. Today’s goods and services are vastly more complex than anything produced during Britain’s industrial heyday – and we no longer have the skills to match. Training those skills takes years. Achieving the desired end state takes high amounts of saving and capital investment stimulated by lower time preference rates, i.e. a preparedness to wait for the capital investment projects to be completed so that more consumer goods can start flowing.

But when a nation, such as ours, is a consumer/services based economy, suffering from high indebtedness and yawning trade deficits, time preferences are high are saving/investments are low by definition. The entire endeavour therefore demands a sharp cut in present consumption to fund the reindustrialisation effort, the fruits of which will arrive only in the near future at best. This is a double blow to which no population has explicitly consented, and for which, culturally and psychologically, it is unprepared.

When you strip out all the rhetoric, tariffs are essentially a redistributionist policy – and as with all redistributionist policies, there has to be something to redistribute. So if, therefore, a country’s population is currently dependent on industrial imports, that condition must be acknowledged as their presently best available option. However unsatisfactory, you need that external supply of both consumer goods and raw materials in order to fund the transition to an industrial renaissance. Only after that point can you think about applying a tax policy that will favour the stimulation of particular domestic industries at the expense of others.

Slapping on tariffs in the name of independence right now, however, is like throwing a toddler onto the street and telling it to find its own dinner. Most people will feel only rising hardship and growing resentment before voting the government out (even if tariffs remain superficially popular). Such was the outcome of both the McKinley Tariff of 1890 and Smoot-Hawley in 1930. And, ironically, it was Roosevelt’s response to the latter – the Reciprocal Trade Agreements Act of 1934 – that seeded the multilateral, institutionalised trade regime we’re lumbered with today under the banner of “free trade”.

Our budding national statist could, of course, help matters enormously by clearing out every abominable roadblock to doing business in his country – high taxes, regulation, inflating currency. At least some of that would ease the burden of funding the required capital investment entirely from domestic sources, and would, indeed, be essential planks of any policy of liberalisation. But again – wider context – that is not how the proponents of tariffs appear to be proceeding, or are likely to proceed. The protectionist-in-chief across the pond, for instance, is growing the size of government, not shrinking it.

(Empirically, politicians of any party affiliation tend to differ only over the direction of state power, not its size. A new government promising “redirection” nearly always ends up heaping on more state interference on top of what has already gone before, even when reducing some of the latter would be coherent for a particular policy goal. Unless a politician is committed, in principle, to reducing the size of the state across the board, it is generally futile to expect them to lessen their grip in any place it’s already been exerted).

One other point on the matter of “national interest”: every argument that can be made against free trade between nations can equally be made against free trade within them. Suppose the Midlands became more favourable for heavy industry than other parts of Britain; production would shift there, leaving those other regions less industrialised than before. If one insists on tariffs to preserve a “national” car or steel industry, one must also concede that Yorkshire might demand tariffs (or other government privileges) against the Midlands to preserve a Yorkshire car or steel industry. Only the heavier psychological weight of national political borders prevents us from seeing that the same preoccupations could be applied to every county and town.

(To the extent that industries favoured by tariffs are concentrated in specific regions, those tariffs will also distort the internal economy. Capital and labour will flow from the less favoured areas into the protected ones, leaving the former with fewer jobs and opportunities. It isn’t obvious to me that losing your job to another region of Britain is any less devastating than losing it to China.)

Finally, it is, of course, insufficient to resolve the current debate over tariffs and protectionism by regurgitating specific areas of textbook economics alone. That shortcoming – a common trait of self-styled pro–free marketeers – is one I’ve criticised more than once. But this is not because the validity of economic laws depend on the particular situation, but is rather, down to two reasons:

First, as we mentioned earlier, the immiserating effects of artificially offshored production are real, and people complaining about free trade as the cause shouldn’t just be dismissed as economic ignoramuses without actually working to address their concerns.

Second, a naked and unsystematic approach of deregulation doesn’t necessarily lead to greater liberty in the long run. Unfortunately, the lion’s share of government interference today intervenes not in the free market directly, but subsists as an effort to remedy the effects of previous government meddling. A case in point: banking regulations that temper the excesses of banks operating in a paper currency environment. If you remove the top layer of regulations without also removing the fundamental problem, then the old calamities return: boom and best, mass bankruptcies, etc. Blame is heaped, however, not on the underlying problem itself, but on the proximate and visible factor of bank “freedom”. The project of liberalisation is therefore discredited; people once again demand more state regulation.

As geopolitical analyst Tom Luongo puts it, there is, therefore, an “order of operations”. We cannot focus on the end game without considering the moves that get us there in such a way as we do not derail the entire train.

It is, therefore, perfectly sensible for a libertarian to caution against naive liberalisation and, in some cases, to even oppose it when we can see that the results would, in the long run, discredit it. If, therefore, we were already burdened with tariffs that were attempting to counteract artificially offshored production, I would certainly hesitate to endorse scrapping them without also addressing the more fundamental economic distortions – just as I would hesitate to endorse a repeal of banking regulations without addressing the issue of sound money. But that is entirely different from heaping on tariffs as an additional interference which we don’t yet have.

Notes

[1] For a fuller explanation of this kind of approach, see Hülsmann, Jörg Guido, Facts and Counterfactuals in Economic Law, Journal of Libertarian Studies 17, no. 1: 57–102 (2003).