Commentary

Enroll Buchanan in Economics 101

By Daniel Griswold
This article appeared in the Wall Street Journal on August 11, 2000.

Pat Buchanan turns history and economics upside down to defend his anti-trade views (Letters to the Editor, Aug. 23). While Smoot-Hawley did not single-handedly cause the Great Depression, it didn’t deliver the promised relief to U.S. industry, either. By spurring retaliation abroad, it prolonged and deepened the global depression. We would be foolish to go down that road again. Mr. Buchanan gripes about our expanding trade deficit while at the same time denouncing “U.S. capital pouring into [other] countries to build new factories to replace plants shutting down across the U.S.” Perhaps a freshman economics student could explain to Mr. Buchanan that the reason we have a trade deficit is because of all the foreign capital pouring into the United States, amounting to hundreds of billions of dollars a year. This capital surplus has kept domestic interest rates lower, fueling America’s investment boom.

As for all those factories shutting down, Mr. Buchanan’s ideology has blinded him to the big picture. American manufacturing is thriving today in a more open global economy. Since 1992, manufacturing output in the United States is up by more than 40 percent, with domestic output of cars and light trucks at record highs. The $2 billion a year we invest in Mexican factories is a tiny fraction of the $200 billion a year we invest in domestic manufacturing. In fact, foreign companies invest more each year in American manufacturing than Americans invest abroad, which is why today one in eight U.S. manufacturing workers is employed by a foreign-owned affiliate.

Pat Buchanan’s message of economic “independence” through government-imposed trade barriers is a recipe for national decline and waning U.S. influence in the world. Judging by the latest polls, most Americans agree.

Daniel Griswold is the director of the Center for Trade Policy Studies at the Cato Institute.