Protectionist policy can remedy some problems.

While I was away, Dominic Pino responded to my provocations on the subject of free trade versus protection. I am certainly not going to bore readers with another 4,000-word stemwinder. But I’ll spend a few paragraphs defending my thesis.

Here’s what Dominic writes, quoting me (my text in italics):

He [MBD] covers a lot of ground, but he twice said that his view on the subject can be summarized in the following concise way:

A global free market is necessarily indifferent to the distribution of goods, skills, technological capacities, and power among nations. Statesmen cannot be so indifferent.

Helpfully, this means I don’t have to go into the details of the rest, because nothing could be further from the truth. Markets are not indifferent to where and how goods and services are produced. They are highly — ruthlessly — partial to producing them where and how it is most profitable to do so.

From there Dominic soon ascends into the empyreal realm of rhetoric of global capital. Free trade merely affirms the justice of property rights and lifting people out of poverty, Dominic claims in a perfect abstraction. I’m sure property rights were “respected” at McKinsey’s corporate retreat in Kashgar, where those in attendance hobnobbed with the commissars of Chinese state-owned enterprises within practical earshot of the gigantic detention centers for Uyghurs. Confirming the charges of my first piece, Dominic casts protectionism as a foe of human rights. But the practical ground is that free trade without concern for political ramifications means that McKinsey has a profitable relationship with the Chinese firms building out new man-made islands and pressing territorial claims against our vassals and allies in the Pacific.

I’m not sure where I was unclear, but far from revealing my first premise to be “nonsense,” Dominic refutes it by just restating it in another way. It’s a fun way of agreeing to disagree. I said global markets are indifferent to their distribution among nations. Dominic correctly says that they are partial to producing them where there is the greatest return to capital. These are two ways of saying the same thing. Production follows profits, but the most profitable global distribution of goods, resources, and skills may not conduce to any one nation’s political health or geopolitical power. Perhaps the confusion is that Dominic thinks I’m saying markets are indifferent to locating anywhere, when I plainly say that on principle they don’t consider politics or nationality in location.

Beyond that, Dominic predicts that I will say true protectionism isn’t being tried or has never been tried. I don’t know why. While none of them are perfect, we have seen plenty of examples in American, British, German, Japanese, Korean, and recent Chinese history of protective and industrial policy actually achieving political goals that alter the geopolitical chessboard. We also have many examples of it failing in South America, India, etc. Dominic knows that I’m also a frequent critic of how the United States conducts its foreign policy. It’s often done badly, but this has not caused me to call for the abolition of the Department of Defense and State Department, or the immediate unilateral institution of universal peace as the ideal foreign policy. So, with trade policy, it is possible to have a bad strategy, but wishing away national interests and conflict is likely to result in an even worse failure.

Far from limiting my case only to national security, I am open to using protectionist policy to remedy problems caused by this search for profitability among markets that are integrated at the level of capital, but radically diversified in the matter of law and labor. The virtues that Adam Smith identifies in a commercial society arise when competition is fair. That’s what induces people to produce the best product at the best price. One of the implications in my essay that I didn’t spell out is that one reason that financial institutions lobby very hard for free trade deals but less so for economic-regulatory harmonization across the world (or the freedom of serfs and slaves) is that it is a hard business to find the most efficient use of capital in a fair competitive market, but it is relatively easier to find returns to capital based on regulatory arbitrage and rent-seeking in a global economy where capital (but not labor) is much freer to seek from a buffet of favorable arrangements, including those supported by state mercantile policy or unregulated by environmental concerns. Anyway, that’s another interesting rabbit hole.

But before we go deep, I would prefer to get the basics right.