Free Trade, Conservative Style

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Back in
1976, I was Congressman Ron Paul’s research assistant. I had contacts
with other Congressional staffers on Capitol Hill. One evening,
I attended an informal get-together in the Georgetown area. The
host was a retired diplomat whose daughter worked in Senator Jesse
Helms’ office. I had been invited by Howard Segermark, also a
Helms staffer.

One moment
in the evening’s chit-chat has stuck in my mind ever since. In
discussing free trade, one man, whom I had never met before, expressed
his view of free trade. "Free trade is when you stick a .45
automatic to the temple of some Asian and tell him, u2018Gook, we’re
going to trade . . . on my terms.’"

I dismissed
him as an ideological aberration. I don’t think he was on any
Congressional staff. But, over the years, I have come to the conclusion
that both conservatives and liberals share his view of free trade.

The various
multinational trade agreements that have been signed by the United
States government, most notably those authorizing the control
of the terms of trade by the World Trade Organization (WTO) and
the North American Free Trade Agreement (NAFTA), are essentially
forced-trade agreements. They require private companies in each
nation to meet production standards that are imposed by international
bureaucracies. Reductions in tariffs and import quotas are accompanied
by labor restrictions, pollution standards, and large printed
volumes of other impositions. These restrict the operation of
free markets. What appear to be reductions in government control
(sales taxes and import limits) are accompanied by increases in
government control (production codes). "The large print giveth,
and the fine print taketh away."

All participating
nations are required by international law to interfere with voluntary
transactions within each nation, as well as voluntary transactions
across national borders. Officers of these nations must abide
by the legal interpretations made by unelected international bureaucrats.

BORDERS
AND TRADE

There is
a border down the middle of your street. Cars travel in one direction
on one side of that border. They travel in the opposite direction
on the other side. Laws govern the movement of cars on each side
of the border, including that most powerful of laws, the law of
inertia.

We are taught
from an early age to respect these laws. "Don’t run into
the street," we are told from the time we can walk. "Look
both ways before crossing" is another.

The dividing
border, which is usually marked by painted lines on asphalt, has
nothing directly to do with trade or other communications between
people living on each side of the street. If you want to offer
to mow the lawn of someone who lives across the street, what does
that have to do with highway safety laws governing drivers? Assuming
that you don’t push your lawn mower in front of a passing car
on either side of the dividing line, what business is it of your
next-door neighbor or the non-mower’s next-door neighbor?

The emotional
power of a border can be very great. The border may divide two
cultures, such as the border between Mexico and the United States
does, or the border between India and Pakistan. But a person on
one side of a culture-dividing border still may see an advantage
in exchanging property or services with a person "just across
the street."

If a person
on one side of a national border is allowed to cross the street
and buy from the person on the other side, he knows that he must
abide by the laws of the jurisdiction governing the other person.
He takes this factor into consideration, or should if he wants
to avoid legal problems. He counts the cost of compliance on the
other side of the street. But for as long as he stays on his side
of the border, he should not worry about what the laws are on
the other side of the street. They do not apply to him.

The problem
comes when his political representatives or their agents decide
to negotiate in his name with the politicians across the border.
They seek to change the terms of trade. He will soon learn that
the politicians on both sides of the border respond, not to consumers
as voters, but to producers as campaign donors and bribers. Producers’
economic interests are highly focused. Consumers’ economic interests
are not. Producers are skilled in the art of political lobbying.
Consumers are not.

The governments
on both sides of the border hold the equivalent of that .45 automatic.
Consumers do not. When an official holding a .45 sets the terms
of trade, we "gooks" must either comply or face the
consequences.

A BORDER
IS A BORDER IS A BORDER

Free trade
begins with two people, each of whom sees the possibility of improving
his circumstances by exchanging the legal ownership of assets
with the other. Each wants to own what the other possesses. Each
is willing to surrender something of value in order to obtain
legal possession of what the other person legally possesses.

The decision
to buy and sell — one man’s "buy" is the other man’s "sell" — is
made by the parties involved. Each assesses the value of that
which he seeks to obtain and compares it to whatever he is willing
to surrender.

Next-door
neighbors on one side of the street go through the same mental
processes of value-assessment that across-the-street neighbors
do. There is nothing about the line down the middle of the street
that changes the mutual evaluation processes.

But, say
critics of free trade, a barbed wire border is different from
a highway dividing line. This is true, physically speaking. Barbed
wire can hurt you. But why does the composition of the dividing
line make the process of buying and selling fundamentally different?

Both borders
mark legal differences. A highway dividing line marks the separation
of cars travelling in opposite directions. A barbed wire border
between nations imposes restrictions on the flow of people. But
why should the flow of goods across a national border be different
from the flow of goods across a highway border?

ELECTRONS
AND MOLECULES

Get on the
internet. Type an address. You cannot be sure if the owner of
the Web site lives in your town, your nation, or your hemisphere.
A .com suffix tells you nothing about where the seller lives.
Spelling on the Web page may reveal the background of the site’s
owner, but the Web host server could be anywhere.

There are
no borders on the Internet. There are only addresses. A person
can buy a report posted on a Web site and never know where the
report writer lives, or where the server is, or where the seller’s
bank is. He downloads the report onto his hard disk, never knowing
where the original electrons are stored. He does not care.

Politicians
care. Politicians running Government A may not want its citizens
to be able to obtain information from sites located in unfriendly
countries, meaning political entities run by rival politicians.
There are legal borders separating political entities that the
Internet does not acknowledge. But politicians on both sides of
these invisible borders acknowledge differences that the Internet
ignores.

Why should
a politician in Nation A be granted the right to control the buying
of electrons from people living in Nation B? What factors, morally
or logically, authorize politicians in Nation A to restrict the
purchase or sale of electrons across the nation’s border, when
those same electrons may be legally exchanged by people who live
inside Nation A? What does it matter where the seller’s site server
is, or where I live, or where the seller lives, or what bank the
seller uses?

It matters
to politicians. It matters to bureaucrats who are employed by
the WTO. But since they can do very little about the flow of electrons
on the Internet, they have kept in the background.

When it comes
to molecules rather than electrons, government officials do not
stay in the background. When commerce moves from electrons to
atoms, and especially to entire molecules, politicians and their
agents insist on controlling the terms of trade. Violate these
terms, and you risk facing a group of molecules in the shape of
a .45 automatic.

THE
PRODUCTION OF MOLECULES

Molecules
impose burdens on the environment, we are told — burdens not produced
by electrons. So, governments impose restrictions on the production
of certain molecules.

Businesses
in Nation A therefore face higher costs of production for certain
molecules than businesses in Nation B face. Molecule producers
in Nation A have higher costs of production. But if they raise
prices, they lose business if consumers in Nation A are allowed
to purchase similar products made in Nation B, where production
costs are lower, and therefore sales prices are lower.

So, when
a consumer in Nation A seeks to purchase a product made in Nation
B because the selling price is lower than a product made in Nation
A, producers in Nation A complain to the government. "Nation
B’s producers are taking advantage of you politicians, who have
the best interests of our great nation at heart. They are selling
goods at lower prices. Our people are being encouraged to harm
the environment of Nation B, whose politicians are not far-sighted,
the way you are. You must put a stop to this, for the sake of
the world’s environment. You must defend Planet Earth. You must
impose restrictions on the importation of goods produced in Nation
B or any nation that does not enforce environmental laws. After
all, we need a level playing field."

This level
playing field may be level on one side of the border, but it is
elevated compared to playing fields on the other side of the border.
So, the producers on the high side of the border ask their government
to dump enough dirt at the border so that producers on the other
side must spend a lot of money to climb up this added layer of
dirt.

Consumer
A is now hit twice. He pays more for goods produced in his nation,
and he pays more for goods produced in other nations. He is forced
to accept the more expensive playing field because of the mountain
of dirt — judicial barriers — at the border.

Politicians
can do this because molecules are less expensive for bureaucrats
to monitor and control than electrons are.

A GUN
AT MY HEAD

The fellow
at that party had the idea that he, as an American, could put
a .45 at the head of the Asian and get what he wanted at a price
he was willing to pay. He forgot the obvious: a U.S. government
trade official has a gun at his head, not the Asian’s head. The
Asian is over there on his side of the border. The American is
over here.

Of course,
there will also be an Asian bureaucrat with a gun at the Asian’s
head.

On each side
of the border is an official who has a gun. The American bureaucrat
has a gun at the American’s head, and the Asian bureaucrat has
a gun at the Asian’s head.

Occasionally,
the American bureaucrat and the Asian bureaucrat shoot at each
other, which is to say, they point a gun at their own people and
tell them to get into uniform and go shoot the other people on
the other side. World War II, the Korean War, and the Vietnam
War are examples.

The problem
with bureaucrats with guns is that they use them mainly on their
own citizens. These citizens stand at the border and make offers
to people on the other side. But there are bureaucrats on both
sides of the border who point guns at their own people and tell
them, "You can’t make that offer" and "You can’t
accept that offer."

CONCLUSION

The problem
with conservatives who favor restrictions on cross-border trade
is that they do not seem to recognize at whose head the .45 is
pointed.

May
29, 2004

Gary
North [send him mail]
is the author of Mises
on Money
. Visit http://www.freebooks.com.
For a free subscription to Gary North’s newsletter on gold, click
here
.

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