Free trade is under attack – again. This time, however, the attack comes from an unlikely source. It is not from environmentalists objecting to capitalists spoiling the pristine environment of third-world countries as they flee draconian U.S. environmental laws. Nor is it from inefficient or uncompetitive U.S. companies kept alive by government subsidies or import quotas. The attack is not from the misguided NAFTA, GATT, FTAA, or WTO protestors who rail against capitalism itself. It is not from economic nationalists who demonize Wal-Mart and equate the opening of each new Supercenter with another step toward the decline of Western Civilization. And neither is it from labor unions seeking to preserve the above-market wage rates that their members enjoy.
No, the attack this time comes from conservatives who are known for opposing government intervention and regulation.
Recent issues of The New American have lamented the U.S. trade imbalance and chronicled the decline of American manufacturing as an increasing number of jobs are outsourced and more and more imports are allowed in. Although the crushing burden of government regulations is often cited as a cause, free trade is invariably viewed as part of the problem.
Too many unnecessary things are clouding the issue. To begin with, many people arguing for free trade are really arguing for government-managed trade, and many people arguing against free trade are really arguing against government-managed trade. This is why supporters of thousand-page trade agreements like NAFTA are viewed as free traders. And that is why the Bush administration can use free trade rhetoric while at the same time imposing tariffs, quotas, and “voluntary agreements.”
Then there is the idea that trade takes place between countries. Unless the government has complete control of the economy, trade, although often spoken of as between countries, is between individuals. Whether it is one individual selling an item to another individual, a small business that has found an overseas niche, or a corporation selling ten thousand tons of a commodity to another corporation, trade is not between countries, it is between individuals. When trade is thought of as only between countries, the fallacy that trade results in some countries benefitting (winners) at the expense of others (losers) is not far behind. Mises terms this dogma the “quintessence of the doctrines of Mercantilism.” He further maintains that “it is at the bottom of all modern doctrines teaching that there prevails, within the frame of the market economy, an irreconcilable conflict among the interests of various social classes within a nation and furthermore between the interests of any nation and those of all other nations.”
The latest justification for protectionism is that trade between two parties may hurt a third party. But again, Mises said: “The statement that one man’s boon is the other man’s damage is valid with regard to robbery, war, and booty. The robber’s plunder is the damage of the despoiled victim. But war and commerce are two different things.”
Much ado has been made about the British classical economist, David Ricardo (1772–1823), and his explanation of the economic principle of comparative advantage – as if that was the deciding factor as to whether we should have free trade. The idea is that we live in a different world than Ricardo, and his theories are no longer valid. Freedom, however, is eternal.
The case for free trade is not based on fair trade, trade agreements, international trade theory, factors of production, absolute advantage, comparative advantage, or efficiency. These arguments miss the real issue. There is a far more philosophical defense of free trade that has been neglected: freedom. The moral case for free trade is based, not on how efficient or beneficial free trade is, but on freedom itself. Free trade simply means that every citizen of every country is free to trade with any citizen of any country.
The alternative to free trade is protectionism, whether in the form of tariffs or import quotas. Besides making imported goods more expensive, tariffs merely give the government additional revenue. But why should the state be entitled to more money? Doesn’t the state already spend over $2 trillion a year? To question the legitimacy of free trade while at the same time saying that protectionist measures are not the answer is to attempt a middle-of-the-road position, which, as Mises showed, leads to socialism.
A rejection of free trade is an endorsement of interventionism. If trade is “harming” a sector of the U.S. economy, then who is to determine the remedy? Who decides how much of a tariff to impose? Who decides that only x amount of a good can be imported? The industry seeking protection? Why, it is the state, of course. This immediately raises three questions. Is the state responsible? Is the state capable? Is the state reliable?
Is the state responsible for protecting American industries from foreign competition? Then why not protect industries from domestic competition as well? And why not protect industries from each other? Why not protect companies that make regular cameras from companies that make digital cameras? Why not just take control of all production and distribution in the entire economy and protect everyone from everyone? Trade restrictions are the first step toward statism, for if the state knows what is best in the matter of trade, then why not the entire U.S. economy?
Is the state capable of determining the “proper” amount of protection required? How much of a tariff or quota should be imposed? And what should be their duration? What goods should be subject to a tariff or quota? What goods should be exempt? The possibility of such an economic calculation was refuted by Mises back in 1920.
Is the state reliable? That is, can we trust the state to make trade decisions that are in the best interests of American businesses and consumers? I think the answer is quite obvious. Granted, the state is good at one thing – mass bombing of countries that don’t submit to its hegemony.
Should all decisions on trade matters be left up to the likes of Robert Zoellick, the U.S. Trade Representative, Don Evans, the U.S. Secretary of Commerce, N. Gregory Mankiw, the Chairman of the Council of Economic Advisers, Stephen Friedman, the Director of the National Economic Council, or some other modern-day Jean Baptiste Colbert. Or perhaps this cabal should be expanded to include the thousands of career bureaucrats on the government payroll.
Free trade is not threatened by any new developments, free trade is only threatened by government intervention. So rather than being part of the problem, free trade is the solution. The problem is not that we have free trade, the problem is that we do not have free trade. We have government-managed trade. We have regulations that choke American manufactures and small businesses. Our funding of the International Monetary Fund, the World Bank, and the Export-Import Bank, coupled with foreign aid, loans, bailouts, and subsidies – all courtesy of the U.S. taxpayer – distorts the global marketplace. In short, we have policies that reward foreign competitors while penalizing American producers.
The benefits of free trade are incalculable, and can never be quantified in a spreadsheet. As John C. Calhoun wrote to the British free trader, Richard Cobden: “I regard free trade, as involving considerations far higher, than mere commercial advantages, as great as they are. It is, in my opinion, emphatically the cause of civilization and peace.”
The debate over free trade is also a reminder that we need to return to the non-interventionist foreign policy of the founding fathers. Real free trade is the first plank in a foreign policy that will make America the envy of the world instead of the scourge of the world. Rather than being a cause of group hatred, the spread of global markets is the surest way to promote, in the words of Jefferson, “Peace, commerce, and honest friendship with all nations.”
Further reading: Joan Kennedy Taylor, ed., Free Trade: The Necessary Foundation for World Peace (Irvington-on-Hudson: FEE, 1986).