The Myth of Free Trade

[This article was produced in answer to the question ‘Was nineteenth century free trade imperialist?’ as seen on paper ‘History II’ as part of the Examination Fellowship for All Souls College, University of Oxford, September 2013]

“If it were necessary to give the briefest possible definition of imperialism, we should have to say that imperialism is the monopoly stage of capitalism.” – Vladimir Lenin, 1916

To be ‘liberal’ is, apparently, to be free of structure. In reality, it is to be ignorant of structure, perhaps deliberately so; this is an argument that has come to light in the development of critical political theory in answer to more orthodox methodologies. Within this development lies the debate on free trade. Such a concept dictated much internal British politics during the height of empire, and continues to spark debate in international political economy to the present day. The main concern usually lies on the side of the liberals (both with lower and upper case ‘L’s), who promote(d) free trade partly on political/philosophical grounds of self-determination and individual rights, and partly on more pragmatic ideals of inter-state peace and interdependence. Liberals however, by ignoring structures, do not consider a separate important question: how ‘free’ is free trade?

Critical theorists come back at the liberal standpoint, pointing out that free trade is a myth. Both in historical and contemporary context, free trade is no more free than protectionism. This article argues against the purity of free trade, positing that the world economy has always been rife with structural exploitation, given the nature of capitalist trade in the first place.

The Historical Political Debate on Free Trade

Winston Churchill, after having been elected a Member of Parliament for Oldham as a Conservative in 1900, famously ‘crossed the floor’ (i.e. defected to the opposition, at that time, the Liberals) four years later on the matter of free trade. Churchill detested the Conservative’s support of protectionist tariffs that were designed to maintain British hegemony over the world economy, opting instead to favour the Liberal’s free trade agenda. Perhaps Churchill thought free trade was more morally viable than protectionism, or perhaps, indeed, he thought there was more money to be made in free trade. The former, if true, is incorrect, but the latter is probably true. Theory tells us why. All things being equal, free trade is wonderful. In essence, it allows markets to flourish naturally, allocating goods, services and profit without the intervention of non-capitalist forces (i.e. the state). The problem is that free trade, both in the nineteenth century and more recently, was artificially forced upon areas of the world economy. This led to structural deficiencies, which liberals and neoclassical economists ignore.

The neoclassicists consider that microeconomic activity must be allowed to flourish in order to produce a functioning macroeconomy. Economists such as Adam Smith thus promoted free trade as a means of ensuring the greatest possible satisfaction of demand for goods and services (and therefore profit). Free trade is hence a prerequisite to perfect growth for liberal neoclassicists. Critical theorists, such as Marx and the aforementioned Lenin, however, comment that trade in itself, across economic borders at least, was a form of theoretical imperialism, because of the inherent inequalities of the world economy.

The argument runs as follows. A healthy economy (A), through the pretences of free trade, sells produce to a weak economy (B), thus undermining, firstly, the equivalent produce in B, and secondly, consolidating a form of investment in B, i.e. market share. This investment thus becomes entrenched, to the extent that B becomes dominated by A and cannot break the structurally exploitative terms of free trade agreements that precipitate such domination. In Lenin’s theory, this is effectively what imperialism is – the expansion of capital and its consolidation by politics (which, as Clausewitz wrote, often becomes war). Free trade, by this theory, also relies on equal intensities of capitalist social relations in both economies, which, if uneven, leads to exploitation.

During the nineteenth century, the myth of free trade, upheld primarily by the British, but also by the Russians, French and other European empires, fostered some rather unpleasant currents. Many imperial projects were formed on the basis of protecting free trade – which is a bit of an oxymoron, given the anti-protectionist nature of free trade in the first place. The Opium Wars between Britain and China are a prime example of this ‘protectionism’. The Chinese, suffering at the hands of Eurocentric ‘free trade’, intervened to prevent the sale of opium from British India in the Chinese market. The British, who needed a commodity to trade for Chinese tea, ‘protected’ the doctrine of free trade by going to war with the Chinese and forcing their opium products upon the market. Victory for the British led to the ceding of Hong Kong, and a century of discontent with foreign presence in the Chinese political economy.

The Contemporary Debate

Much American foreign policy in the twentieth century has been lumped under a dubious umbrella of ‘democratic protectionism’, which is inaccurate given the support the US has shown for autocratic regimes, such as the Iranian Shah and more recently the Saudi royal family. Through the auspice of free trade, the US has in fact been in support of liberal economies, ensuring American – more, perhaps, capitalist – access to resources. Critical theorists also point to the Bretton Wood Conference, and later the Washington Consensus, as examples of the inherent exploitation in the concept of free trade in the contemporary global economy. The World Bank and the IMF, as well as the US Treasury, all claim to bring a developmental mind-set to the global south. But some critique this aim, pointing out that by encouraging capitalism and free trade doctrine, the Consensus simply reinforces capitalist (American) hegemony over the world economy.

Other institutions such as the WTO also contribute to this idea. The general conclusion for critical theorists is that liberal free trade upholds the status quo, and such a status quo is inherently biased towards particular actors. What is hypocritical about liberals, interestingly, is that they are relatively illiberal when concerned with challenges to what they consider to be the liberal agenda. Thus protectionism becomes jaded, when in fact, all economies enforce some sort of protectionism. This could be in the form of immigration laws (labour is after all a commodity, and the US is hardly an easy country from which to obtain a passport) or bans on the import of particular product to protect local national industry. It is interesting the liberals back free trade, yet accept the arbitrary status of the ‘state’ (or institution) as having the authority to intervene on free trade, and thus move to prevent such intervention (when, in fact, if liberals were truly liberal, the state might be considered another non-sovereign actor amongst individuals and other forms of collective).

Conclusion

All in all, the free trade agenda has and always will suit certain actors more than others. Perhaps there is nothing wrong with this; after all, the era of ‘unequal treaties’, i.e. concessions or agreements designed to force economies into trade, common in the nineteenth century, is a thing of the past. But this, critical theorists argue, is exactly what is hidden behind the liberal agenda fostered by collectives such as the Washington Consensus. Capital, as is the case throughout history, develops more intriguing and effective methods of spreading itself and its influence across the globe, and while free trade is the most economical method of accumulating profit, to capital free trade is worth defending and adapting. Hence, not only was nineteenth century free trade imperialistic, but contemporary free trade is too – only the definition of imperialism has altered slightly from political to socioeconomic subjugation.