The Deep State Loves Free Trade

Powerful global interests built the system we see today

The American trade paradigm is shifting in favor of tariffs, and free trade ideologues are resorting to increasingly contrived arguments to oppose them. Insisting that tariffs harm growth and spawn economic inefficiency hasn’t worked very well—if the deindustrialization of the heartland was “efficient,” too many Americans have decided that they’d prefer to take their chances with tariffs. So, free trade true believers, attempting to read the MAGA room in the wake of yet another Trump electoral win, have come up with a new angle of attack: tariffs are actually a tool of “deep state” elites.

In the Free Press, Judge Glock writes that tariffs are, in fact, “the quintessential example of what [Trump] sometimes attacks as the deep state. Tariffs are managed by opaque bureaucracies and manipulated by high-priced lobbyists in order to extract funds from American consumers.” Glock argues that tariffs incentivize rent-seeking by trade lawyers looking for special treatment and exceptions, as when U.S. importers seek and receive tariff exclusions from the government. It doesn’t sound like any familiar rendering of the “deep state,” but Glock’s point is that tariffs harm Americans through price increases “while an intricate web of bureaucrats and lobbyists reap the benefits.”

In National Review, Dominic Pino agrees that tariffs are a scheme to raise prices on behalf of “well-connected, highly educated government insiders.” He illustrates his point by attacking the biography of Robert Lighthizer, the architect of Trump’s first-term pro-tariff trade policy. Pino writes that Lighthizer is an elite who fakes a populist identity: his “father was a doctor, and his mother attended college,” while Lighthizer himself “has spent his entire career in and around positions of power” and drives around Palm Beach in a Porsche. Pino contrasts this background unfavorably with that of Tax Foundation scholar and free trade advocate Erica York, who “earned her undergraduate degree from the tiny evangelical Sterling College in Kansas, the state in which she still resides with her husband and kids.” There you have it—tariffs are for elite lawyers, free trade is for salt-of-the-earth…think tank economists?

Others have amply addressed the claim that tariffs are mere price increases, but the argument that tariffs are a tool of “deep-state” elites is a new one. It’s also a howler. There is perhaps no policy preference more deeply held among deep-state elites than free trade. Exactly how many pro-tariff populists do Glock and Pino expect to encounter in the auditoriums of Davos or the boardrooms of multinational corporations or the corridors of intelligence agencies? If the partner rosters of the top 10, 50, or 100 American law firms were forced to vote—tariffs, good or bad?—do Glock and Pino think tariffs would win? (As a pro-tariff trade lawyer myself, I can state with confidence that we’re a tiny minority).

Free trade is the ultimate institutionalist position, fought for tooth-and-nail for 70 years by the exact class of lawyers, lobbyists, and national security spooks that Glock and Pino pretend to disdain. Cold Warriors first opened the U.S. market as a carrot to coax geopolitical cooperation out of our trading partners. Judith Stein’s classic book Pivotal Decade relates how post-war trade policy was “hijacked by diplomatic elites” who believed that the U.S. needed to lower its tariffs and accept foreign imports to prevent our trading partners from becoming, in the words of the National Security Council in 1953, “fertile ground for communist subversion.” The NSC, along with Treasury, State, and the Council of Economic Advisors then set about successfully lobbying the White House against adopting tariffs, even when U.S. law called for them. As the founder of the free trade standard-bearer Peterson Institute acknowledged, “the economic argument was always marginal” for free trade. “It was the foreign policy case which provided the real impetus for liberal trade policies in the United States in the postwar period.” This is the actual, rather than the rhetorical, deep state.

This project reached its apogee between 1994, when the United States spearheaded the formation of the World Trade Organization and NAFTA (now USMCA), and 2001, when the United States signed off on WTO membership for China and granted it Permanent Normal Trade Relations. These developments created the global free trade system that still, in large part, orders world commerce. The system consists of thousands of pages of treaties, statutes, and appendices that prescribe detailed rules for global competition and sharply delineate the treatment that system members must afford the goods, services, and investment capital of other members.

Like much of the trade commentariat, Glock and Pino assume that this system represents a kind of libertarian equilibrium, a state-of-nature trade Eden that protectionism is despoiling with special-interest meddling. Glock and Pino are smart people, but this view is naive for a reason that often goes undiscussed: the global free trade system is itself the outcome of lobbying and legal wrangling on behalf of special interests orders of magnitude more powerful and intense than anything that went into Trump’s tariffs.

Free trade globalists built a legal order—often revealingly referred to as “rules-based trade”—specifically designed to enrich their multinational clients. This system produced small overall wealth gains at the cost of massive income redistributions away from disfavored groups (like blue-collar workers) and toward favored groups (like the service-sector corporations that paid for this system to be created). For example, NAFTA is estimated to have increased overall U.S. economic welfare by less than one tenth of 1%, but workers in industries that lost tariff protection saw a wage penalty of up to 17%. Meanwhile, Nitsan Chorev’s exhaustive study of the shift from protectionism to global free trade concluded that “the management of free trade . . . requires as many laws, regulations, and enforcement mechanisms as closed markets.”

The only difference is that the laws, regulations, and enforcement mechanisms that protect global free trade are designed to take away national sovereignty and democratic accountability in favor of transnational bureaucracies and quasi-judicial panels that voters can’t touch. This is “structural internationalization”—the intentional removal of trade-policy authority from Congress, which could express popular demand for tariffs, in favor of new international bodies like the WTO Appellate Body and NAFTA investor-state dispute panels that sought to immunize free trade from popular dissatisfaction. Usually, a preference for one-world government by experts and a crippling fear of voters is a sign you might be dealing with something like the deep state.

The arbitrary, undemocratic nature of the global trade bureaucracy sometimes reaches comical proportions. For example, the WTO Appellate Body, which is responsible for issuing authoritative interpretations of WTO law to which the United States is ostensibly subject, was until 2020 under the control of a single megalomaniacal functionary named Werner Zdouc—the Director of the Appellate Body Secretariat and the Dwight Schrute of free trade. Journalist Paul Blustein describes the situation that prevailed under his reign:

Werner Zdouc is arguably the most powerful international civil servant that nobody has ever heard of . . . . Zdouc not only oversees [the] Secretariat staffers, he reviews virtually every document they submit to the Appellate Body members, often revising their work – in other words, he effectively ‘holds the pen’ in the drafting process for many decisions. Moreover, he participates in virtually every important discussion members have about cases, and he is so relentless in debate that, according to numerous people who have worked with him, those who resist his arguments sometimes give up from sheer exhaustion. Some in Washington and Geneva who consider the Appellate Body too hostile toward trade remedies put much of the blame on Zdouc.

If opposition to tariffs is really about resisting “management by opaque bureaucracies,” and “well-connected, highly educated government insiders,” what exactly do Glock and Pino think is happening here?

And while we’re on the subject of opaque bureaucracies, a central irony of Glock and Pino’s call for eliminating tariffs in the name of economic freedom is that it would turn our market into an extension of the People’s Republic of China. By importing huge volumes of Chinese products whose low prices reflect massive state subsidies, forced labor, currency manipulation, and other non-market distortions, we essentially allow Chinese policymakers to shape our market and determine which American businesses survive and which go under. Our wish to maintain a free enterprise system is meaningless if Chinese national champions can, with the benefit of support from their government, undersell and bankrupt American firms that lack such support.

So long as the global trading system includes China, “free trade” will come at the expense of our free market. The choice is not between a tariff bureaucracy and economic freedom, it’s between an economy that is accountable to the American people and one that abets the takeover strategy of an adversary. It should be clear which side really represents “freedom.”

The global free trade system is based on a collection of agreements, including large multilateral agreements like the ones that built the WTO, regional trade agreements between multiple countries like NAFTA, and numerous bilateral trade agreements between sets of two countries. A naive view of these agreements is that they merely lift restrictions on trade, returning global commerce to a natural state of freedom. That is not what they do. In the words of Harvard economist Dani Rodrik:

Contemporary trade agreements go much beyond traditional trade restrictions at the border. They cover regulatory standards, health and safety rules, investment, banking and finance, intellectual property, labor, the environment, and many other subjects. They reach well beyond national borders and seek deep integration among nations . . . According to one tabulation, 76 percent of existing preferential trade agreements covered at least some aspect of investment (such as free capital mobility) by 2011; 61 percent covered intellectual property rights protection; and 46 percent covered environmental regulations.

What these agreements really seek is what Rodrik calls hyperglobalization—the elimination of all transaction costs hindering trade and capital flows. The hyperglobal trade regime sees variance in domestic laws as a major transaction cost and seeks to harmonize them by leapfrogging over democratically accountable institutions and promulgating new rules on taxation, investment, intellectual property, and so on, at the international level.

For example, the main prize the United States “won” from the WTO negotiations was the Trade Related Aspects of Intellectual Property Rights (TRIPS) Agreement, which provided for stringent enforcement of copyrights, trademarks, and patents abroad. A coalition of IP-heavy corporations including Monsanto, Pfizer, and IBM had lobbied the U.S. government to turn IP protection into a trade issue and developed the standards that negotiators should pursue. The United States also secured the liberalization of service sector regulation, a goal it pursued at the behest of the Coalition of Service Industries lobby group and the CEOs of Citibank and American Express, each of which headed key advisory groups organized by the U.S. Trade Representative and “exert[ed] influence on US policy through direct participation in negotiations with other countries.” Under this negotiating paradigm, Rodrik writes, “business lobbies became partners and collaborators for the trade negotiators.”

In exchange for other countries committing to a friendly regulatory regime for sectors with powerful lobbies, the United States agreed to a two-fifths tariff reduction along with additional commitments to open its textile sector and end the use of voluntary export restraints. We ended up with the lowest tariff rates in the world, lower than any of our trading partners, giving foreign producers more opportunities to sell into our market than U.S. producers would have to sell into theirs. The arrangement effectively redistributed wealth from domestic production sectors to IP and service sectors of the economy, and institutionalized a profoundly unequal trading system. This wasn’t the natural outcome of economic freedom; it was simply where the lobbying landed. We’re still living with the consequences—but at least developing countries offer 50-year copyright terms.

The later decision to admit China to the WTO and grant it Permanent Normal Trade Relations was likewise not a commandment of the invisible hand; it was a political decision based on expectations that proved false—and were the product of intense lobbying. Hank Paulson, in his capacity as CEO of Goldman Sachs, had spent years getting legal exceptions made for Chinese state-owned enterprises to list on the New York Stock Exchange without normal financial disclosures; equity holders stood to profit enormously from China’s WTO accession, as did corporations like AIG, Motorola, and FedEx that had already invested heavily in China. They organized through the U.S.-China Business Council, the Business Roundtable, and the U.S. Chamber of Commerce to lobby Congress on normalizing trade relations with China.

Congress signed off because boosters for China’s entry claimed that bringing China into the WTO would reduce our trade deficit by opening up China to U.S. exports. Phil Gramm, then the Chairman of the Senate Banking Committee, pushed for a “yes” vote with the prediction that there would be “a dramatic boon to U.S. manufacturing.” The opposite happened. Instead of increasing U.S. exports, American companies took advantage of the opening by simply offshoring to China and exporting made-in-China goods back to the U.S.—a development that, had it been known in advance, would have rendered the trade normalization vote dead on arrival. As a direct result of Chinese imports, America lost 1 million manufacturing jobs in the decade following China’s accession to the WTO, and the sector arguably never recovered.

It turns out that this was foreseen by some, including Robert Lighthizer, who predicted that China’s accession would increase our trade deficit and that “no manufacturing job would be safe.” For a supposed representative of the deep state consensus, he was awfully lonely in that position. Too bad we didn’t listen.

The hyperglobal trading system doesn’t represent “freedom.” It is simply its own form of structured trade, on behalf of its own set of special interests, subject to its own bureaucracy. But there’s at least one crucial difference. The structure, interests, and bureaucrats behind American tariffs are accountable to the American people, and they are at work remaking the hyperglobal system because voters gave President Trump a popular mandate to do so. That’s not the deep state. It’s democracy, the deep state’s worst enemy.