The Poison Fruit of Free Trade

by Patrick J. Buchanan – October 28, 2002

In August, the U.S. merchandise trade deficit – the value of goods we import, less the value of the goods we export – hit $42.3 billion, an all-time record for any nation. Our merchandise trade deficit is now running at $507 billion a year, nearly 5 percent of America’s Gross Domestic Product.

For every $1 billion in exports, Presidents Bush I and Clinton used to remind us, 20,000 jobs are created. A $507 billion trade deficit means 10 million production jobs lost to American workers. No, free trade is not free.

Watching television the other night, I saw my friend and colleague Larry Kudlow chuckling over the trade deficit. It means we get all those TV sets and cars other people make, laughed Larry. On another channel was a lengthy report about Hathaway Shirts closing its last U.S. plant, in Waterville, Maine.

That same day, Goodyear announced it is shutting down a Lincoln, Neb., plant and replacing its U.S. workers, who earn $18 an hour, with Mexican workers, who will earn $12.77 a day. By dumping the U.S. workers, Goodyear is slashing payroll by 91 percent.

Well, as ex-Budget Director Dick Darman said about U.S.-made computer chips, “If our guys can’t hack it, let ‘em go.” That is the Spirit of the Caryle Group. And, yes, we have been letting them go.

A third of our steel is foreign made, an even larger share of our cars, half our machine tools and almost all our shoes, shirts, radios, televisions, cameras, telephones and VCRs. At Tyson’s Corner, Mall of America and Southland shopping centers, U.S. consumers relish their range of choices. Do they know what it is costing their country?

Since U.S. trade surpluses disappeared in 1971, writes ex-GM executive Gus Stelzer, we have run $3.5 trillion in trade deficits, and the national debt has soared from $408 billion to $6 trillion.

Is there a link? You bet. You don’t need a Ph.D. in economics to know that every product carries in its final sales price the full cost of the taxes imposed on the company that made that product.

Stelzer estimates that 50 percent of the sticker price of a new Cadillac goes for taxes. That includes the sales tax, Social Security and Medicare taxes of GM workers, federal and state income taxes withheld from wages, GM’s corporate income tax and the property taxes GM pays. When you buy an American-made car, you are contributing to Social Security and Medicare, and to our national defense and national parks, and helping pay for the local police, public roads and public schools.

This is why exports are better than imports, why trade surpluses are better than trade deficits. When foreigners buy U.S.-made goods, half the price they pay underwrites the cost of our government. But when we buy foreign goods, we contribute taxes to the regimes in the countries where those goods are produced. Keep that in mind the next time you buy goods “Made in China.”

Free-traders cheer that tariff rates have fallen to almost zero. What they do not understand is that all taxes are tariffs on production. “An income tax is a tariff, so are property, payroll, sales and every other tax,” writes Stelzer. Why? Because all taxes are factored into the final sales price.

Now that tariffs have been virtually abolished, foreign-made goods carry almost no U.S. tax. But goods “Made in the USA” carry U.S. taxes of 50 percent of their price. Free trade thus makes a mockery of equal protection of the laws.

Free trade, writes Stelzer, “is the only competitive activity in which the rules are not the same for every competitor even though the lives of millions of people … are involved. No other competitive activity would tolerate such immoral and unconstitutional double-dealing.” This unjust system will one day kill U.S. manufacturing.

Once, our farms and factories produced virtually everything we consumed, and we had no income tax. Manufacturers were the geese that laid the golden eggs. Free trade is now slaughtering the geese.

While conservatives wear Adam Smith ties, they ignore his wisdom:

When the necessaries of life have been taxed in any country, it becomes proper to tax not only the necessaries of life imported from other countries, but all sorts of foreign goods which can come into competition with anything that is the produce of domestic industry.

Adam Smith believed in a level playing field.

Elite America no longer believes that, and because it doesn’t, Middle America is losing its access ramp to the American Dream.