The Dangers of Closure

With the recent, rather brutal, battle in the United States Senate over the ratification of the Central American Free Trade Agreement (CAFTA), the people of the United States should be increasingly concerned about the policy direction the United States is taking with respect to trade and international commerce. One of the hallmark events of the pre-World War I era was the movement from free trade and free international economic activity to that of relative economic closure, and high tariffs. We would do well to avoid a repeat of this disastrous epoch in world history, but the rising pressures from China's rapid economic expansion, coupled with the resistance of American Organized Labor community to revisions in America's antiquated labor laws confront us with a severe set of problems. First, we are inefficient at production compared to the rest of the world, and second, we are unwilling to accept large trade deficits (despite the fact that most economists will tell you the trade deficit is not the problem; the budget deficit is, and the trade deficit would be relatively resolved if we did not have the budget deficit issue, but I digress).

Given this, there is increasing pressure in the American political community to oppose further liberalization of American trade, and even to impose tariffs on goods coming from countries like China. This is the worst possible course of action we can take in the face of these problems, and the lessons of history teach us that economic closure leads to economic stagnation and even recessions, and then to war. There is no greater form of war mongering than passing tariffs.