We are a long way from Adam Smith and the less complex world of the early 1800’s. It’s high time traditional economists let go of the dogma.
Free trade has been an unassailable geo-political objective since the Great Depression. And in the almost 90 years since then, adhering to the principles of free trade has routinely been presumed to deliver overwhelmingly positive economic results.
The near religious belief in the virtues of Free Trade have now come under intense scrutiny. Unquestioned adherence to the principles of free trade is being questioned and has been met with a skepticism that has grown into a major, worldwide political movement.
Traditional economists are fond of citing Adam Smith (1776) and David Ricardo (1817), pointing to the thinking and writings of both as their authority. In the less complex and intertwined world prevailing in the early 1800s, the policies advocated by Smith and others were no doubt appropriate to the time. The huge distortions to free trade principles created by hyperactive governments in centrally planned economies had not yet surfaced. So economists quoting Adam Smith and others were not challenged.
All this changed in the period following World War II. Japan, Germany, and Italy looked to their governments to accelerate their recovery from the economic wounds of the war. The victors were not far behind as they intervened in trade to speed their recovery.
Great Britain and France built nationalized steel industriesin self defense, and to thwart the growth of Communism in regions hobbled by high unemployment. (Note there is always a rationale!). South American dictatorships followed suit, simply because it was fashionable. The first person to oppose this growing trend was Margaret Thatcher; and it nearly cost Mrs. Thatcher her political career.
In more ways than one, free trade was a casualty of WWII. Free Trade obviously wasnt free by the time governments bailed out money-losing coal mines in Wales and Germany for the benefit of nationalized steel industries. Ultimately, the nationalized steel industries in Japan, Western Europe, and elsewhere were privatized. But then, an ambitious China appeared on the scene, and overbuilt a steel industry that dwarfed all others, rendering them essentially insignificant. Free trade indeed!
We are a long way from Adam Smith and the early 1800s. In todays world, trade is a myriad of complex agreements, accommodating subsidies (including our own), import taxes, export taxes, mandates, etc. Even so, economists continue to espouse and lecture everyone on Adam Smith and the virtues of free trade. At the first sign of a country acting in its self interest, shouts of protectionism go up and we are all chided for failing to understand the intricacies of free trade.
Graduates in economics deserve better than they seem to be getting. Text books and professors who live, instruct, and engage in the 21st century should take the first steps toward improving the quality and relevancy of this dialogue. Instead, graduate students continue to churn out theses embracing the assumption that all trade is positiveregardless of massive government-instigated distortions.
Thomas C. Graham
Thomas C. Graham is a founding member of T.C. Graham Associates. He is a former chairman and chief executive officer of AK Steel Corp., president and chief executive officer of Armco Steel Co. LP, chairman and chief executive officer of Washington Steel Co., president of the U.S. Steel Group of USX Corp. and president and chief executive officer of Jones & Laughlin Steel Co. His column appears monthly. He invites readers comments and can be contacted at email@example.com.