Why Liberal Trade Policy is Misguided

The United States has, since the Woodrow Wilson Administration, pursued a trade policy marred by liberal ideology. Liberalism proposes that all men, through reason, can ascertain universal axioms that are applicable to all humans, in all locations, at all times. Liberal thinkers, like John Locke and Thomas Jefferson, posited that central to these axioms is the belief that humans are inherently free by their nature, and that the preservation of this freedom is the central aim of the State. The individual is the central actor within the liberal paradigm.

Any restriction on the individual’s freedom is to be denounced as the greatest sin. Economists reduce the individual to being nothing more than a consumer. All decisions the individual makes result in the consumption of varying amounts of “utility”, or happiness/satisfaction. All non-monetary sources of utility, like concepts of fairness, duty, and honor, are overlooked by liberal economists, or outride discarded. Material consumption, particularly the maximization of that consumption, is what reigns supreme.

Liberal trade policy will posit questions like, would trade liberalism result in lower prices for consumers? Would it maximize the profit of firms? Would it create allocative or productive efficiency, herein defined as the maximization of surplus consumption? Everything in liberal economic theory reduces the individual to being a consumer and acting solely in his or her role as a consumer. Any consideration of the polity is solely in the manner of aggregate consumption.

Herein we find the failures of liberalism. Individuals are not islands that live within a sea of isolation. Humans are social creatures by our nature and are born into complex social organs that are predicated on mutual loyalty. We are born into families with parents, grandparents, siblings, aunts, uncles, and cousins, each of whom we share varying mutual bonds of loyalty and affection. We extend and intertwine our families with other families through marriage, creating our own cells within the broader organ by having our own children. Through marriage and child rearing, we create new bonds of mutual loyalty that we ultimately view as an extension of ourselves.

Families coalesce with other families, beyond marriage, over common interests, including safety, education, commerce, faith, and preferences. Families build neighborhoods, neighborhoods build communities, and communities build a nation, each with common traits that foster mutual loyalty. For the nation, these traits can, and often are, a common language, religion, history, customs, manners, and values. The nation is not forged in a single juncture in time, but over decades, centuries, or millennia of ancestral development. Institutions are formed not through the individual reason of a single generation, but from the collective wisdom of the past, present, and future all working together.

Humans are more than just consumers. They are also providers, producers, creators, parents, grandparents, believers, neighbors, and community members. We view each of these roles as extensions of who we are and therefore we feel utility and disutility when those in our social network thrive or fall. Contrary to liberal mythos, humans do care about these social institutions and have a natural gravitation to them. Likewise, we do not share equal degrees of mutual loyalty within each level of association. While you may feel compassion for individuals outside your family, you will not share the same affection or loyalty to another random person, or at least you shouldn’t, as your spouse. You wouldn’t feel the same way about the neighbor at the end of the street as you would your children. You normally do not feel the same way about a coworker as you would your sibling.

Similarly, if you live in Pensacola, Florida, you wouldn’t feel the same connection and loyalty to someone who lives in Manhattan as you would for someone who lives in Pace, or in Bellview, or Gulf Breeze. This is because community is a real social bond. It’s not as strong as family, or neighborhood, but it is still an extension of yourself, just to different degree. The same is true for the nation as a whole. You share a common connection and loyalty to your fellow American that you don’t with say someone from Japan, or Indonesia, or Sudan. Again, this doesn’t discount compassion that we can have for our fellow man, and we still do share a common connection as human beings, but that is still lesser than connection of the nation, as a collection of individuals who share a common language, religion, history, customs, manners, and values.

I raise the failures of liberalism in general in the matter of trade, because liberal trade policy, which seeks to elevate the individual as a material consumer above all other human roles, and sets the ultimate end as economic freedom, rather than the holistic wellbeing of the individual, including that which extends from him, because it demonstrates how liberal trade policy, by its foundation, is misguided.

Liberal free trade policy, which seeks to maximize economic freedom by removing domestic trade barriers, are intended to enable nations to specialize production in those industries with which they have a comparative advantage. Comparative advantage is the economic term that refers to the capacity of a nation to produce a specified good by forgoing less of an alternative good than its trading partner. For example, if the United States can produce 50 tons of beef and 50 tons of corn, then for each ton of beef produced, the United States must forego one ton of corn. If Mexico can produce 10 tons of beef and 20 tons of corn, then for every one ton of beef it can produce, it must forgo two tons of corn. The United States can produce beef by forgoing less amount of corn, and therefore has a comparative advantage in producing beef.

The Ricardian idea concludes that if countries specialize and trade, with the price of beef to corn being established somewhere between the domestic price of beef in the U.S. and the domestic price of beef in Mexico, then both countries can end up with more and therefore consumers will be able to consume more than before, we have wonderful economic efficiency.

There are fundamental problems with Ricardo’s theory. First, he only accounts for labor in the production process, believing that capital is simply a byproduct of labor and therefore nothing more than an extension of labor. Second, he believed in the labor theory of value, the archaic belief that all things have an inherent value that can be measured by the amount of labor used to produce it. Through the perspective of the labor theory of value, then the global price of beef or corn would just be a ratio of the amount of labor needed to produce each good in each country. The third major failure is that he assumes that labor, and therefore, capital are immobile between countries. Finally, he posited that any disparity in trade would be self-corrected by international flows of money.

Each of these assumptions by David Ricardo have been proven false, hence why countless new models of international trade have been cultivated by liberal economists trying to rationalize its failures. First, labor is not the only input in production, and capital is not just a byproduct of labor. While it is produced by labor (though less and less so in the age of robotics), it is also an amplifier for labor productivity. Land, or natural resources, and technology are also essential components of production.

Secondly, the labor theory of value is hogwash. The marginalist revolutions of Britain and Austria demonstrated this with such clarity that even universities, which hold to the liberal dogma of classical economics, solely teach the subjective theory of value. The value of all goods and services are not predicated upon the amount of labor that is used in production, but the subjective preferences of the individual consumers, each acting in their own self-interest, with his or her own consumer sovereignty.

This means that the price of beef can be wholly disconnected from the price of wheat, and the price of labor used in cultivating wheat can be entirely distinct from the price of wheat. This means that having a comparative advantage in wheat doesn’t inherently mean that the beef you are buying is of equal value to the market. It is possible that the wheat you grow and sell to foreign countries will be worth less than the beef that you buy from those same foreign countries.

Third, and arguably most importantly, is that Ricardo’s presumption that labor and capital are immobile between countries is almost comedically false. In the age of “economic liberalism” under the branding of free trade, producers are free to abandon the interests of the family, community, and nation, for the advancement of individual consumption, by moving production from higher cost labor to those foreign nations that possess lower cost labor, and shift capital to meet that demand. Profits do in fact increase for these corporations, and prices are lower for the consumer, and consume they do, but the nation ultimately suffers. Families are left without employment, communities without an economic foundation, and the nation as an assembly of despair reliant upon foreign nations who share not the common ancestry or the degree of mutual loyalty.

Finally, Ricardo’s belief that trade would always self-correct was predicated upon both a distinct system of money that is wholly distinct from our own, and rooted in unrealistic idealism. The central premise of Ricardian self-correction is that when one country trades more to another country, i.e. a trade deficit emerges, then the country that is the beneficiary of the trade deficit will receive a net addition of its currency within the exchange market, as the foreign importing country will be required to exchange its foreign currency for the domestic currency, resulting in an overall appreciation in the value of the domestic currency, making its continued exports more expensive to the importing nation. Likewise, the net outflow of currency from the suffering nation will result in a depreciation in its currency, resulting in the foreign nation exporting more to the domestic nation, resulting in a natural elimination of the trade deficit.

This belief fails on two fronts. First, Ricardo cultivated this theory when the world still operated on the classical gold standard, where net inflows and outflows of gold did have an equilibrium mechanism on markets. However, the world today operates entirely on a complex network of fiat currencies, each managed by a separate central bank, for the purpose of advancing the interests of the varying nations. Each of the nations use their governments regulatory, fiscal, and monetary policy to distort this natural equilibrating force so that trade deficits do not self-correct. Hence why the American trade deficit is now a fifty-three-year problem, and one that is tragically getting worse, not better.

We should also address the liberal dismissal of trade deficits as a viable measure of concern within the macro economy. You will hear proponents of liberal trade policy argue that trade deficits are not areas of concern, and should be dismissed either as symptoms of a bigger problem, or discarded entirely. I’ve even heard proponents make comparisons between trade deficits and shopping at a local grocery store. The argument goes something to this effect. “You have a trade deficit with your local grocery store. You don’t go into Publix, or Walmart, or Target, and trade goods with the cashier, you go in and you load up your cart and you hand them money and walk out. You bought goods, and didn’t sell any in return, that’s a trade deficit.”

These voices are correct, but only in the narrowest sense. In a capitalist system, you do specialize and through specialization, you will have varying trade deficits with various actors. Your boss has a trade deficit with you, because you sold them labor and they didn’t sell you anything back, and therefore had to pay you a wage via money. These individual transactions are pointless to the discussion of trade deficits. We may be concerned and analyze these trade deficits if they were a product of malfeasance. If the United States has a trade deficit with China because China routinely engages in currency manipulation, intellectual property theft, export subsidization, etc., then that would be a matter of specified concern.

What those critiques of liberal trade policy are actually concerned about is the aggregate trade deficit, and particularly whether it’s a chronic problem. Yes, you have a trade deficit with your grocery store, but do you have a trade deficit with the broader society? In other words, you sell your labor to an employer who, in turn, pays you a wage. You then take that wage and buy the various things you want and need through that period. Do you buy more from society than you produced, or do you buy less than you produced. If you lived within your means then you incurred a trade surplus with society. If you lived outside your means then you ran a trade deficit. There is no problem with individuals, communities, or nations incurring a trade deficit in a given year. Families will do it if they are buying a home via mortgage. Communities may be doing it if they are building a new school. Nations may be doing it if they are fighting a war, surviving the business cycle, or facing a drought.

However, families, communities, and nations cannot consistently operate at a trade deficit. If a family routinely lives outside of its means, i.e., buys from society more than it provides society in production, then it will deplete its assets and compound its debt, until it has no choice but to enter liquidation or bankruptcy. Likewise, if a nation continuously runs a trade deficit with the rest of the world, that means it is consuming more from the world than what it is producing. The only way to do this is to liquidate assets or assume more debt. This weakens the nation, much like it weakens the families and communities.

It is no surprise that in the fifty-three years since the United States first began to incur a chronic trade deficit, the percentage of federal debt to GDP has risen from 35% in 1972 to 121% in 2025. More concerning, the percentage of private debt to GDP grew from about 80% in 1972 to 142% in 2025. You cannot live beyond your means forever, nor is it wise for a nation to leverage so much economic power to foreign nations that do not share the same interests as the domestic nation. Indebtedness is the inevitable conclusion of a policy that prioritizes material consumption, and defines efficiency as that which maximizes material consumption. When you advance unbridled freedom as the ultimate end, then you will get the fruits of freedom unbridled by virtue.

It is high time that we reject liberal trade policy, as part of a broader rejection of liberalism itself. Conservative trade policy doesn’t call for autarky or isolation. It simply says that the State should pursue trade policy that places the holistic wellbeing of the family, community, and nation as the ultimate end. Trade is still highly beneficial for the nation, but that trade should be tempered by national interests, and not just the maximization of corporate profits or the maximization of individual material consumption. We should ground our policy in reality, not in fantastical idealism. Liberalism ignores the reality of the social fabric, conservatism embraces it. Liberal trade policy may have led us astray this past century, but a conservative trade policy can bring us back.