NAFTA Fever and the Illusion of Government-Created Free Markets

As the nation prepares for Trump’s second term, protectionism and hostility to free-trade are getting a second wind.To preempt the economics behind these ideas, it’s worth revisiting the fact that the government cannot “level the playing field” or create free markets.

The following article was originally published by the Mises Institute. The opinions expressed do not necessarily reflect those of Peter Schiff or SchiffGold.

Left or right, the enemy is the free market. Every problem is the fault of the free market. On the left, the supposed radical deregulation of the 1980s paved the way for the financial crisis and the destruction of the environment. On the right, free trade is responsible for the gutting of manufacturing. The free market is made out in this mythos to have had its heyday in the 1980s and ‘90s and destroyed everything. Even free market advocates fall into this trap, saying that this time in the near past was a free market victory. The results—they try to argue with the market critics, but they agree with the causal analysis: Markets won! Hooray!

The fact is that all three of these groups are wrong. There was no American market revolution in the ‘80s.

It is important to make note of the rhetoric of American life up until the 1980s. American life at the beginning of the 1930s was introduced to the message of “market failures” that justified the New Deal. By the end of the 1940s, Americans were thrown into the Cold War, where all of American life was defined by a battle between “American Capitalism” and “Soviet Communism.”

Paying lip service to the free market was easy. Fusionism became the default conservative ideology, the mixture of so-called “fiscal conservatism,” the “moral majority,” and hawkish foreign policy. The hawkish foreign policy—the boogeyman of National Review—was bearing the brunt of the load. As Buckley put it:

We have got to accept Big Government for the duration [of the Cold War]— for neither an offensive nor a defensive war can be waged…except through the instrumentality of a totalitarian bureaucracy within our shores.

“Fiscal conservatism” was cast aside in the name of fighting the Soviet menace, but it was in the name of capitalism because everything was done in the name of fighting communism. Every American who bought into the existential crisis of Cold War rhetoric could be coaxed into supporting any policy in the name of capitalism and free trade. So when politicians wheeled forward thousand-page treaties with import/export quotas, environmental regulations, and currency price controls under the name of “Free Trade Agreements.” No wonder the American people got behind it.

No wonder free trade got stuck with the blame. It is an age-old tactic to give bills positive names while they have the opposite effect (e.g., the Inflation Reduction Act). Who would oppose the “Giving Puppies Good Homes Bill of 2024”? At the end of the Cold War, who would oppose a supposed free trade agreement with our fellow capitalist allies?

With the backing of the tail-end of the Cold War market-rhetoric and every Cold War “free enterprise” think tank, we were given NAFTA. Rothbard himself lamented the rise of NAFTA fervor in every so-called “free market think tank.” He wrote in his essay “The NAFTA Myth”:

For some people, it seems, all you have to do to convince them of the free enterprise nature of something is to label it “market,” and so we have the spawning of such grotesque creatures as “market socialists” or “market liberals.” The word “freedom,” of course, is also a grabber, and so another way to gain adherents in an age that exalts rhetoric over substance is simply to call yourself or your proposal “free market” or “free trade.” Labels are often enough to nab the suckers.

And so, among champions of free trade, the label “North American Free Trade Agreement” (Nafta) is supposed to command unquestioning assent. “But how can you be against free trade?” It’s very easy. The folks who have brought us Nafta and presume to call it “free trade” are the same people who call government spending “investment,” taxes “contributions,” and raising taxes “deficit reduction.” Let us not forget that the Communists, too, used to call their system “freedom.”

One has to wonder where NAFTA supporters found their solace: Was it ignorance of what was actually in the treaty? Was it in favor of some “middle-of-the-road” policy? Or was it by virtue of being purchased and funded by vested business interests that benefited from the treaty? We may never quite know. But we can know for certainty that a treatise with thousands of pages, featuring currency controls, import controls, and imposed cross-border regulations is hardly a laissez-faire victory.

But these rhetorical victories that Rothbard decries become stuck in the minds of Americans. The media proclaims the “new age of free trade!” and most buy into it. The failures of interventionism are thus blamed on the free market.

Reagan is lauded as a limited government president who unleashed the markets through deregulation but that is truly a myth. Reagan may have allowed his bureaucracies to loosen environmental regulations in his tenure but it opened the door for the dreaded Chevron Doctrine. Reagan did not touch the New Deal and Great Society apparatus of regulation. The bureaucracies of the Progressive Era remained intact. The central bank remained. Reagan may have lowered some income tax rates, but he was hardly a deregulator.

Lest any progressive try to blame so-called “financial deregulation” for the “Dotcom” and 2008 recessions, the only needed response is Tom Woods’ book Meltdown. Central banks playing price controls with interest rates created the financial crises.
Thus, we reach the two-fold path of “NAFTA fever.” It comes in two forms: either the radical insistence on a free market victory that never truly happened or the hatred of the free market based off of a rhetorical scheme that never was true. Neither are honest or helpful.

Those defending markets should not fall into NAFTA fever, into a dogmatic orthodoxy whereby they defend NAFTA and the illusion of a free market victory. These were never free market victories, but intervention dressed in the garb of market rhetoric. We should not be jumping to the defense of the results of interventionism. Interventionism causes a death spiral of failure and continually worse social conditions.

To bring about free markets and a more prosperous society, we need to make it clear what is the fault of interventionism and what isn’t. The United States has been defined by interventionist economic policy for a century, so it is no wonder that social conditions have worsened and more have become discontent. Free markets didn’t cause our conditions, they were simply the costume in which interventionism was packaged.

No wonder more people today despise markets. By buying into the rhetorical marketplace of the time interventionists and cronies passed off their interventionist legislation as part of a “market revolution.” The revolution never came, unlike the revolution described by Garet Garrett. American political discourse needs a cure to its NAFTA fever.