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TRADING DOWN

Apr 13, 1998, Vol. 3, No. 30 • By DAVID FRUM
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Patrick J. Buchanan

The Great Betrayal

How American Sovereignty and Social Justice Are Sacrificed to Gods of the Global Economy

Little Brown, 320 pp., $ 22.95


In his newspaper columns and on the campaign trail, Pat Buchanan has bitterly attacked the overpowering consensus among political elites in favor of free trade. His latest book, The Great Betrayal: How American Sovereignty and Social Justice Are Sacrificed to Gods of the Global Economy, unwittingly demonstrates why that consensus has held so long: The best case for protectionism that one of America's most gifted polemicists can offer is as feeble as any BMW dealer could wish.


The Great Betrayal is crammed with bullet lists of statistics and graphs that swoop alarmingly up or depressingly down in proof of the book's thesis. But examination quickly reveals how carelessly they have been used. Buchanan observes, for example: "Since 1966, the share of American men with jobs has fallen from 85.4 percent to 76.8 percent. Idle men end up in trouble, often in prison." The culprit, he claims, is free trade.


Buchanan is in fact correct that American men are less attached to the labor force than they were thirty years ago. But the single most important reason for that is the aging of the population and the greater generosity of Social Security. Back in 1966, only 8 percent of adult American males were older than sixty-five, and more than 27 percent of them still worked. Today, nearly 11 percent of adult American males are over sixty-five, and only 17 percent of them work. There has been a slight increase in idleness among working-age men, but the main cause is the welfare state: Some two million American men now draw disability pensions from the Supplemental Security Income program -- which did not exist in 1966.


There are dozens of such misuses of statistics in The Great Betrayal. Buchanan declares, for example, that "In the first six years of the 1990s, the median family income fell 6 percent. During the Depression-era 1930s, it rose 17 percent." Apparently aware of the eyebrow-raising nature of this claim, Buchanan footnotes it -- to a page in a book that makes no reference to the 1930s at all. That's not surprising: The federal government only began collecting family-income data after World War II, and if family income had risen by 17 percent in the 1930s, the decade would have been one of the most prosperous in American history. The book Buchanan cites does make reference to the six years from 1989 to 1995: Over that period, which contains a recession, average family income fell not by 6 percent but by 0.6 percent.


Intending to show how free trade has chipped away at manufacturing, Buchanan complains that "America's share of world industrial exports was fast shrinking: from 32 percent in 1950, to 28 percent by 1960, to 20 percent in 1973." But why stop in 1973? According to the World Trade Organization's 1996 annual report, in 1963 the U.S. accounted for 17.4 percent of world exports of manufactures, and in 1973 it accounted for 12.8 percent -- but in 1995 it accounted for 12.4 percent. In other words, it's certainly true that America owns a smaller share of the world economy than it did immediately after the rest of the world had been ravaged by the Second World War. But even granting the eccentric view that national share of world exports provides a valid way to measure a nation's economic condition, America's relative position for the past twenty-five years has held steady. Measured in just about any other way, America's economic hegemony is more commanding today than at almost any other moment in the nation's history.


Buchanan, it must be said, is a great storyteller, and one of his most affecting stories describes the impact of foreign competition on American workers. On the campaign trail in 1992, visiting a New Hampshire pulp and paper mill, he shakes the hand of a subdued worker who breaks his downcast silence to plead, "Save our jobs." But there's an intellectual step that must be taken here, and Buchanan -- who repeatedly expresses his disdain for economic reasoning -- refuses to take it.


If America heeded that New Hampshire millworker and imposed a prohibitive tariff on foreign pulp and paper, American pulp and paper prices would quickly rise. That would be very nice for the owners of American mills, and -- who knows? -- they might even share some of the windfall with Buchanan's men on the line. But the tariff would have the effect of hiking the price of every cardboard box used to ship computers to Brazil and Argentina, the price of every medical textbook sold to India and Pakistan, the price of the liner in every compact disk American companies market in Germany and the Czech Republic. Insulating one industry from world standards of price and quality inevitably damage the ability of every other company in America to meet those standards in its own market.


Similarly, the tariff on Mexican lettuce and tomatoes that Buchanan wants would raise the price of produce for every household in America. Buchanan makes much of statistics showing that manufacturing wages in Germany now exceed those in the United States. But one reason that disposable incomes in the United States remain so much higher than they are in Europe is that Americans are not obliged to pay double and triple the world price for the food they eat.


Protectionism is an attempt to raise standards of living by systematically raising prices. As such, it is almost by definition bound to fail. That's not merely a theoretical point. When put to the test, protectionism has failed -- as the Brazilians know. And the Mexicans. And the people of India.


Buchanan tries to deny this record of failure, citing the spectacular growth of the United States under protectionism in the late nineteenth century. Generations of high-school students have groaned when their textbook opened to the tariff controversy in post-Civil War America, but surprisingly enough, this tariff history provides the most entertaining and informative part of The Great Betrayal. Such dusty, half-forgotten characters as Justin Morrill -- for thirty years one of the most powerful politicians in Washington -- spring to unexpectedly vivid life. And much of what Buchanan has to say about America's protectionist past is not entirely wrong. Protectionism probably did, in some ways, accelerate American industrialization. But that acceleration came at a terrible price, and it is a price that Buchanan declines to reckon or recount.


The apogee of American protectionism from 1873 to 1913 was, not coincidentally, a period stained by enormous internal strife. These were the years of the Pullman strike and the Haymarket Massacre, of Tom Watson and Mother Jones and the assassinations of Presidents Garfield and McKinley.


Americans who grew wheat and cotton, who felled timber and mined copper, were highly dependent on export markets. The goods they sold were priced at world prices, but tariffs ensured that the things they bought -- from farm equipment to shoes -- were priced far above the world prices. The trade policy of the late nineteenth century brutally exploited the South and West, and the farmers, loggers, and miners knew it. Buchanan calls present-day America a colony of Japan. It would be much closer to the truth to say that under the Morrill and McKinley tariffs, two-thirds of America was a colony of New York, Pennsylvania, Connecticut, and Massachusetts.


And even within the industrial Northeast, protectionism intensified class conflicts. Workers knew that business acumen alone was not what built the vast fortunes of the Andrew Carnegies and the Henry Clay Fricks. The government propelled certain men toward unimaginable wealth by barring potential competitors, and it was natural that their employees dreamed of using the same rough, coercive methods to get a share of the boodle. Anger in the South and West, anger in the mill and on the shop floor, helped elect in 1912 the first Democratic president in sixteen years -- and a free-trade Congress as well, which in 1913 reduced tariffs to levels undreamed of since before 1860. The First World War cut that free-trade experiment short, and in the 1920s the resurgent Republicans repealed it.


It's here that Buchanan manages to land his one good punch. The most notorious tariff in American history is the Smoot-Hawley tariff of 1930, which the current generation of conservative politicians and journalists has convinced itself sparked the Great Depression. How, Buchanan demands, can a tariff enacted in 1930 cause a slump that began in 19297 And how, he demands even more forcefully, can a 1930 tariff have proved so catastrophic, when the much more onerous Fordney-McCumber tariff of 1922 failed to halt the Roaring Twenties?


The answer is that Fordney-McCumber was indeed a catastrophe that can fairly be said to have caused the Great Depression -- but conservatives prefer to avoid saying so because they want desperately to vindicate the once- vilified tax-cutting administrations of Warren Harding and Calvin Coolidge. The tariffs of Harding and Coolidge must be innocent, and therefore the Smoot- Hawley tariff signed by the tax-raising Herbert Hoover must be guilty.


Hoover's economic record is indeed appalling. But we ought not to blind ourselves to the consequences of the blind economic isolationism of his predecessors. At the end of the First World War, the bloodied and starving Europeans desperately needed things they could get only from America: food to feed their people and machines to rebuild their factories and farms. To obtain those things, they needed dollars, and the only way to get dollars was to sell European goods in America. But the tariff of 1922 had slammed the door.


Unable to export to America, the Europeans -- with the active support of the U.S. government -- began borrowing instead. Huge loans were made to German companies and German towns, and loans very nearly as big were floated throughout the rest of the continent as well. This massive borrowing threatened to drive up the value of U.S. currency on international money markets, and the Federal Reserve held down the rising dollar in the only way it could, cutting interest rates in the 1920s to nearly zero. That will start a pretty good economic party, and off the Twenties roared.


Buchanan is thus right that high tariffs in some sense drove the prosperity of the 1920s. But it was a precarious prosperity. Ultra-low interest rates invite inflation, and by 1929 the Federal Reserve was forced to hike rates in order to stabilize prices. In the United States, that triggered the recession of 1930. In Europe, the effect was horrific. Thanks to Fordney-McCumber, the European economies were all built on colossal debt to the United States. The Germans in particular were not only borrowing to buy what they needed; they were soon borrowing to pay the interest on prior borrowings.


Without access to the world's richest markets (the British had turned protectionist in the 1920s, too), and without much of an internal market after the inflation of 1923 wiped out what remained of domestic savings, the German economy failed. When the rise in American interest rates in 1929 brought money flooding back from Europe, German borrowers began to default -- which wiped out deposits in the American banks that had lent to them -- which forced those banks to recall their domestic loans -- which bankrupted borrowers across the United States. By the time it all ended in 1933, the American money supply had contracted by some 25 percent and one in four Americans was out of work.


As the victim tumbled down the stairs, Senator Smoot and Congressman Hawley gave him a kick to hurry his progress. But the fundamental error had been made with the Fordney-McCumber tariff eight years before.


After 1945, America applied the lesson it had learned in 1922. But Buchanan -- and Ross Perot and the steel companies and the AFL-CIO, not to mention the trade hawks of the Department of Commerce and the protectionist Washington think tanks and lobby groups -- forgets what that lesson fundamentally was. America is like a fat man on a park bench: If he sits on the wrong spot, he upends the bench like a teeter-totter, and not just his trading partners but he himself lands hard. The prosperity of the United States is inescapably related to that of the rest of the world.


And it always has been so. America has always been a great trading nation: a great importer, a great exporter, a great borrower, a great lender. This is not dependence or a derogation from national sovereignty. It is commerce. At the very end of The Great Betrayal, Buchanan drops some hint that he understands all this -- that he realizes America's connections cannot be severed. He just does not like them.


The man is entitled to his preferences and aversions, but he ought not to pretend that his preferences would enrich the country when the evidence is so overwhelming against him. It is Pat Buchanan, not the free traders, who wants to reduce the standard of living of the average citizen in the name of an abstract ideological project. He hopes to persuade America's conservatives to follow him. It would be suicide if they did -- for them, for the country, and for the world economy.




David Frum is a contributing editor to THE WEEKLY STANDARD.