Free Trade and Blasphemy

Back in January, Izabella Kaminska, formerly of the Financial Times, outlined an interesting take on Trump's then-impending tariff policy in a Politico article:"The era of Bidenomics is already being eclipsed by a new vision rooted in what could be called “national capitalism.” It’s a philosophy of radical liberalization that rejects state intervention, embraces privatization and leans heavily on market forces to reshape the economy — albeit within the confines of a protected system." The US's interpretation of capitalism has always been nationalist so you might question whether there has really been a departure. You might indeed wonder what Bidenomcs was if not a harbinger of a more assertively nationalist view of trade as a matter of national security. In Kaminska' view, "The tariffs aren’t being fueled by beggar-thy-neighbor trade objectives or crude protectionism; they’re resetting the rules of the game. Their purpose is to insulate the U.S. as it embarks on a radical market-oriented recalibration, stripping away the distortive, and often corruptive, influence of other countries’ state-driven economic models. ... Put simply, the U.S. has to build a wall against products from the global economy so that it can roll out a far more radical liberalization at home."

The opposition in these two excerpts between a "protected system" and "crude protectionism" highlights the fuzziness of the argument, which in turn reflects the incoherence of Trump's policy to date. A lot has happened since January, and we're clearly not in calm waters yet despite the climbdown from an all out trade embargo with China, but you'd be hard put to claim that a plan is successfully coming together. It's estimated that Trump has made more than 50 separate changes to the tariff regime and issued over a dozen executive orders on trade policy this year, which doesn't suggest a lot of joined-up thinking let alone a systematic plan. It's hard to disagree with the liberal conclusion that the last 6 weeks have been a lot of nothing: "2 April 2025, is not yet remembered as the day American industry was reborn. Much of what was announced that afternoon has already died." Kaminska's implication back in January was that the US is consciously returning to its Hamiltonian roots: protecting domestic producers by tariffs but otherwise giving capital a free hand to sculpt the US economy as it sees fit. Occam's Razor suggests Trump is off his nut and doesn't know what he's trying to achieve beyond some nebulous "deal of the century".

I think this reflects Kaminska's desire to see a more vigorous capitalism, as well as her longstanding disdain for the EU, but that has led her to misread the signals. As evidence for the change in policy she notes that "Trump’s America plans to eliminate subsidies for green energy and electric vehicles" and that this "will see fossil fuels compete on an equal footing, after years of being sidelined by preferential policies for renewables." Next to this she cites an "aggressive antitrust agenda that puts competition first" and the intent of Pete Hegseth, the Secretary of Defense, "to break up entrenched relationships between the Pentagon and contractors". The former are things already happening or clearly in the works. If there was one thing you could predict knowing Trump's history and who funds him, it was that the oil industry would be favoured. The latter two are pious hopes that probably aren't going to happen. Even more ludicrously, she claims that "His exploration of a bitcoin reserve — which advocates believe would make it impossible for central banks to prop up banks with money printing — indicates that the era of state-supported banks is likely over." Occam's ever-useful Razor suggests that Trump's interest in crypto is a lot simpler and boils down to a pump-and-dump scheme run by his sons.

More recently, Kaminska has commended an FT article by the American conservative think-tanker Oren Cass who employs the same free-trade versus national capitalism dichotomy. This is a more defensive piece, written after the bulk of the tariff chaos. Cass crticises free-traders for "imagining a global economy that operates like the friendly free market on the economist’s blackboard in which competitors sharpen one another and capital flows to its best use. Productivity rises, prices fall, everyone flourishes. In the real world, by contrast, the global marketplace is dominated by government-built national champions. Capital flows towards the biggest subsidies and the most exploitable labour." This is a cogent critique, but Cass's purpose is not to suggest that the US might do likewise, which would be anathema, but to reinforce the idea that there is a choice to be made: "The bet on tariffs is that the free market, even at more limited domestic scale, can deliver better outcomes than a global market dominated by state-subsidised national champions. Perhaps the free-traders are betting on the latter, and would abandon American-style capitalism altogether before allowing so blasphemous a word as “protection” to pass their lips. What they cannot have in the modern world, no matter how ideal in theory, is free trade and a free market at the same time."

Where Cass goes wrong is in imagining that a free market is possible, even if only within a protected domestic economy (and implicitly at continental scale - this isn't an option for mid-size countries like the UK or France). The suggestion is not only that free trade and the free market are at odds but that all the latter needs to flourish is the limitation of the former. There are two issues here. The first is that a truly free market has never yet arisen at scale and across all significant areas of the economy. What we have is a melange of freeish sectoral markets, state-controlled monopolies, commercial monopsonies  and cartels. Likewise, there has never been consistent free trade despite all the attemps from GATT onwards. International commerce is subject to diverse tariffs, non-trade barriers and regulatory constraints whose practical effect is to favour certain producers or importers. Capitalism is everywhere a managed system. The invisible hand is a convenient myth.

There is a sense in the arguments of Kaminska and Cass of another attempt to revive the health of late capitalism with "one weird trick". Rather than asking why capitalism produces the negative outcomes that it does, the suggestion is that true capitalism hasn't been tried yet (the old mocking critique directed at socialism), or that we have at least diverged from the true path due to a faddish globalism. Seeing free trade as antithetical to a thriving domestic capitalism doesn't make much sense. As Cass himself notes in reference to "export-led growth", there is no lack of examples of successful capitalist economies that have thrived on free trade, but he dismisses these as the product of state subsidies to national champions. In other words, cheating. The reality is different. Other economies are not as dependent on subsidised national champions as he suggests, while the US itself is hardly a stranger to both open and disguised subsidies, hence those remarks about an "aggressive antitrust agenda" and the Pentagon's "entrenched contractors". Making subsidies more overt was central to Bidenomics, after all. 

What both Kaminska and Cass fail to mention is that the great change in trading patterns that occured towards the end of the last century had nothing to do with the trade in goods or services but was to do with the free movement of capital. It was the removal of capital controls in the 1980s that led to the offshoring of American industrial production (and that of many other developed nations) and consequently the diversion of US capital to foreign investments. That, rather than the state subsidisation of national champions, stimulated export-led growth in developing nations. The problem for the US is that the free movement of capital works in both directions. This has led to increased foreign investment in America since the millennium, notably by Europe and the Far East, that has acted as a beach-head for the import of goods and services, producing both trade deficits and growing liabilities (i.e. the outflow of earnings). This has not been offset by a comparable growth in US earnings from foreign investments. The end result of Trump's chaos is a default 10% tariff on other countries. This is a tax. Whether you see it as an attempt to redress the US's international investment position, or simply as an excuse to cut domestic income taxes, it is an example of the use of state power to benefit native capitalists. 

We're now at a point in the history of neoliberalism where the domestic demand for increased taxation to repair the degraded social fabric is becoming irresistible. Astute conservatives know that this will mean the increased taxation of wealth, either in the form of property taxes or taxes on the earnings of property. To date, the political response to this has been the cultivation of the populist right. This is because the defence of property is the defence of privilege. Historically, that would take an anti-democratic course and later an anti-communist course, even where the left was weak and no threat. Since the eclipse of communism and the socialist left, it has tended to take a populist course in which the defence of property is married to the defence of the privileges of citizenship and the native against a traitorous establishment and feral immigrants. The vision of American capitalism outlined by Kaminska and Cass, in which tariffs reinvigorate the economy and free trade dwindles, is unlikely to come to pass, both because US capital remains international in scope and because a hegemonic tax on other countries depends on healthy trade. If they were serious about rebuilding industrial production, they would be advocating capital controls but that, not protection, would be the real blasphemy.