Isolationism

By Anthony Passalacqua (CE’18)

To begin, the fact of the matter is that free trade is better from a global perspective than isolationism. By increasing market size and consumer base, it becomes easier and easier for companies to grow, as they have access to global resources and the best of the best in whatever they need to prosper. This, in the end, is good for your everyday man. Unfortunately, we do not live in the ideal world in which this would be the case. So today, I argue for isolationism, and, in general, nationalistic policies. I will use the two terms more or less interchangeably.

The isolationist policy with regard to trade is one based on the tariff, the—dare I say, time honored—practice of heavily taxing imports. In the modern era, tariffs have fallen to the wayside in the United States, as trade deals such as the North American Free Trade Agreement (NAFTA) guarantee there will be no tariffs between the United States, Mexico, and Canada. A similar deal, the Trans Pacific Partnership (TPP), is currently on the table, and whether it is passed or vetoed depends on the results of the current presidential elections. Both candidates, Donald Trump and Hillary Clinton, currently claim that they would not sign off on TPP, though Clinton has a history of supporting it.

This means that the US market is, to some
extent, subject to the will of foreign nations.

On the surface, free trade deals seem like a total good. The idea is that by opening up cheaper markets, prices will go down, and everyone will be able to use their comparative advantage more effectively. However, there is a more sinister underbelly to free trade deals. We put aside how large bodies like the World Trade Organization can cap tariffs, and the ramifications that such caps have on national sovereignty. Instead, we will focus on the fact that free trade is inherently unfair if not all parties in the deal are playing by the same rules. And in deals between the United States and most developing countries, the other guy is certainly not playing by the rules.

What does it mean to say that? The United States, in comparison to the countries like Mexico, China, and Pakistan, has extremely strict workers’ rights laws, on top of stronger environmental regulation, and a higher corporate tax rate. That makes it extremely appetizing for countries to move abroad when free trade deals are signed—as we saw when NAFTA was passed, and as we continue to see with Ford moving its small car division to Mexico.

Under a free trade deal, moving to another country only adds shipping onto the cost of a product, while greatly reducing manufacturing costs, almost always in notably immoral ways. Companies which move abroad can take advantage of the people of the country to which they move, in the same way large companies took advantage of Americans before labor rights laws were passed. These companies can also dodge the stricter environmental and health regulations of the United States, meaning that when they move abroad they can cut corners, at the cost only of their neighbors and the Earth.

In addition, free trade deals, in their own manner, reduce the independence of the United States’ market. Our manufacturing base is smaller, relatively, than it once was, and that means we rely more on imports to get access to the goods that the people want. This gives other nations a form of leverage over the United States, as they can always raise the taxes on their exports and drive up prices in the United States, without getting to the point that it is better for companies to outright return to the United States. This means that the US market is, to some extent, subject to the will of foreign nations.

Besides that, companies moving abroad strictly lowers the tax base of the United States, as the import tax (at its highest, 16%) is a good deal lower than the corporate tax rate of the United States (currently sitting at 35%). Isolationist thought suggests that these two rates should be reversed. Any imported goods, then, must be high enough quality for the people of the US to want to purchase them regardless of their increased price, while every day goods can come from the United States for a similar— or cheaper— price than they do now, owing to the greatly reduced corporate tax rate.

Imagine a scenario in which prices of goods do go up significantly. In that case, it’s all now within the family, so to speak. American workers have more access to jobs which had been gone for the past twenty years since the signing of NAFTA, the corporations are contributing more to the tax base directly, as they cannot as easily pass the price on to the consumer as they can when faced with a tariff, and additional revenue flows to the state in the form of a sales tax for products that are being sold at a higher price than they once were. All this money flowing around the economy contributes to the rate of GDP growth, which has recently been sorely lacking (hovering at around 1% for the last year, and not exceeding 5% in the last 5 years).

So to summarize, what does the nationalistic policy on trade bring us? It brings us prices which are not significantly higher than currently; it adds to the tax base of the United States; it returns jobs to the United States which had left; it subjects companies to stricter environmental, labor, and health regulations; and, importantly, it allows the United States to be more independent from foreign actors than we are currently, by making us less dependent on imports. ◊

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