Samuel Gregg reviews Robert Lighthizer's No Trade Is Free: Changing Course, Taking on China, and Helping America’s Workers

See The Tariff Man Cometh. Excerpt:

"In this eighteen-chapter book, Lighthizer pursues several goals. One is to outline the “philosophy of trade” which he brought to bear upon American trade policy from 2017 until 2020. He also seeks to illustrate “how a more assertive US trade policy aimed at helping US workers can actually work in practice.” Lighthizer then discusses how America can better navigate economic globalization in ways that, he argues, differ from “old-school protectionism” and “unbridled globalism.”

At the very beginning, however, Lighthizer specifies the lynchpin of what I will call his “new-school protectionism”: that “our citizens are first producers and only second consumers.” By this, he means that, through work, humans produce things and thereby “enjoy the dignity of work, support their families, and actively contribute to society.” The actual goods produced and then consumed are secondary to these ends. That position contrasts with Adam Smith’s famous argument that the purpose of production is consumption: that we produce things in order to consume them—not the inverse.

In one sense, Lighthizer’s position reflects his skepticism of free trade theory and stated preference for the lessons of praxis. But Lighthizer’s accordance of primacy to production also derives from his view that work—the doing of production—has value in itself. Moreover, when “all citizens—including those without college degrees—have a chance to be productive, it’s good for the country.”

This is why Lighthizer believes that “the only practical way to help working people . . . is to support the American manufacturing sector.” That part of America’s economy, he maintains, has hemorrhaged jobs overseas for decades, thereby devastating communities between the coasts. Versions of this narrative presently circulate in New Right and progressive circles.

Lighthizer reiterates his stance on production multiple times, not least because everything else in his book depends on the coherence of his production-over-consumption claim. But therein lies the problem. It is not a coherent position.

That human work can positively contribute to shaping people’s character, help them take care of their loved ones, and bolster communities’ well-being is undoubtedly true. Nonetheless, significant problems plague Lighthizer’s production-over-consumption thesis.

First, if you are not producing something that people (consumers) desire, they are unlikely to purchase your product. In other words, if businesses don’t meet consumption needs and wants, production (and therefore employment) is unsustainable—unless, of course, governments decide to disregard people’s consumption preferences and step in to subsidize production. That, however, is a recipe for stagnation and politicizing economic life.

Consider the following: the production-trumps-consumption claim would legitimate governments subsidizing 1950s factories producing 1950s cars, despite people today preferring more fuel-efficient and comfortable vehicles. For, absent responding to changed consumer demand, how else could you keep workers employed who are skilled at manufacturing 1950s vehicles that no one wants to buy? As an aside, one must wonder: How much job satisfaction would individuals working in such factories derive from their labors, knowing that no one values the products of their work and that their jobs primarily exist because of government largesse?

This brings me to a second point. If we know anything about policies designed to protect particular forms of production from domestic and international competition, it is that these are not devised by benevolent statesmen. That is why Adam Smith observed in a 1783 letter that “every extraordinary, either encouragement or discouragement that is given to the trade of any country more than to that of another may, I think, be demonstrated to be in every case a complete piece of dupery, by which the interest of the state and the nation is constantly sacrificed to that of some particular class of traders.”

Whether it is F. W. Taussig’s monumental study of post-Civil War American protectionism, or Douglas A. Irwin’s analysis of the Smoot-Hawley Act, we know that the question of who gets what form and scale of protection is largely determined by which businesses and economic sectors have the most political pull with legislators and public officials.

Not only does this lead to serious resource allocation errors; it steadily corrupts the body politic. In that regard, it is revealing that the words “crony” and “cronyism” appear nowhere in Lighthizer’s book. Nor, incidentally, does the word “liberty.”

Manufacturing Mythologies

Like most contemporary protectionists, Lighthizer returns again and again to the state of American manufacturing. The decline in manufacturing employment since the 1970s is attributable, he says, to the offshoring of jobs. This has had, according to Lighthizer, calamitous social effects on American workers.

Here, it’s helpful to get some numbers in front of us. According to the US Bureau of Labor Statistics, American manufacturing jobs declined from 19.388 million to 12.989 million between January 1979 and June 2023. In the same period, however, total employment in America grew from 88.808 million to 156.204 million. The millions of jobs created, especially in service industries, thus offset the decline in manufacturing employment many times over. Many people—including working-class Americans—who might have been employed in manufacturing 50 years ago were employed elsewhere in often better-paying and less physically strenuous jobs. Is that an inherently bad thing?

Then there is the issue of causes. Lighthizer accepts that factors like automation impacted manufacturing employment. Yet he doesn’t acknowledge that most of the overall manufacturing jobs decline likely reflects technology displacing humans.

I say “likely” because estimating the respective contributions made by trade and automation to manufacturing employment losses is difficult at the best of times. Arguments continue about the impact of Chinese imports on US manufacturing jobs. More recent analyses suggest that establishing a clear cause-and-effect between Chinese imports and manufacturing job losses is very much in question.

Three representative studies of the “China Shock” (the growth in manufacturing imports from China between roughly 2001 and 2011) estimate that between 10 and 20 percent of manufacturing job losses in this period may be attributed to this cause. This indicates that between 90 and 80 percent resulted from technological change and process improvement rather than Chinese imports.

The burden of proof remains on Lighthizer and like-minded people to illustrate how essentially mercantilist policies would deliver better economic and political outcomes than markets.

Such shifts reflect American businesses pursuing their comparative advantage in contemporary manufacturing, i.e., advanced high-tech manufacturing. That is one reason, as the trade scholar Scott Lincicome has comprehensively demonstrated, why 1) American manufacturing continues to be “near the top of most categories, including output, exports, and investment” compared to the other top manufacturing nations, and why 2) America remains a major global manufacturer and a priority-destination for manufacturing investment.

These observations suggest several things. Putting aside genuine national security needs, why would America deploy protectionism to try to maintain forms of manufacturing where we do not enjoy comparative advantage? Should we pretend that technological and communications developments (something beyond policymakers’ control) have not displaced certain forms of manufacturing in America? Why encourage low-skill manufacturing if that is not America’s comparative advantage? Doesn’t it make sense for America to transition its manufacturing skill base in high-skill directions?

As for social decline, some parts of America once associated with old-style industrial manufacturing have certainly experienced major problems. Yet there is also substantial evidence that using industrial policy to try and reverse the decline in Massachusetts textile towns like Lawrence or communities like Youngstown and Lordstown in Ohio has failed time and again, regardless of which administration attempts it.

The other side of the story absent from Lighthizer’s account is that many similar towns—Beaumont, Texas; Greenville-Spartanburg, South Carolina; Danville, Virginia; Hickory, North Carolina, to name a few—have successfully moved away from low-skill manufacturing. Businesses faced up to the reality of intense import competition from abroad and shifted the focus of what they did. Likewise, many workers learned the type of skills needed by advanced manufacturing firms. In other words, people adapted. Certainly, the transitions were not easy. The alternative, however, was economic stagnation and welfare dependency. Indeed, in many cases, the new jobs turned out to be less repetitive, allowed for much more initiative, and delivered more by way of job satisfaction."

"Then there is that expression “balanced trade”—a goal that Lighthizer believes should be central to US trade policy. Let’s assume that by balanced trade, he means what it typically means: an economy that generally runs neither a trade deficit nor a trade surplus.

If so, how do you “manage” a $26.8 trillion economy so that America arrives and stays at that destination? How do you persuade other nations to match their imports and exports with America’s so as to approximate a zero balance of trade, whether on a country-by-country basis or an international trade balance? How can you know in advance that your particular combination of interventions will achieve the desired outcome? Doesn’t balanced trade effectively mean that you limit businesses’ opportunities to pursue their comparative advantages? And wouldn’t that severely compromise the economy’s competitiveness and flexibility? In short, the more you look at Lighthizer’s proposals for dealing with China, the more their counterproductive character becomes apparent."

"Such details are symptomatic of the wider problem with Lighthizer’s narrative. Too many of the premises on which he bases his proposals are erroneous, and his policy preferences, if followed on the scale he projects, would inflict considerable damage on America’s economy and magnify the political dysfunctionalities encouraged by neomercantilism.

In the end, Lighthizer-style protectionism encounters the same difficulty which has confronted free trade skeptics from Adam Smith’s time onwards, i.e., the burden of proof remains on Lighthizer and like-minded people to illustrate how essentially mercantilist policies would deliver better economic and political outcomes than markets. It is a standard that his book does not meet."