One issue that differentiates economists from the vast majority of the general public is free trade. Economists overwhelmingly support international trade, with little or no regulation or taxation, and abhor protectionism—trade policies designed to “protect” domestic jobs. Meanwhile, upwards of 80% of American citizens believe that the U.S. government should be protectionist—or at least that’s what they say when asked. Their choices as consumers, however, tell a different story.
First it should be established what we mean by “free trade.” The term has taken a beating due to its association with non-free trade agreements and organizations such as NAFTA and the World Trade Organization. Real “free trade” is unilateral—it does not require an “agreement” between nations, only an agreement between the two parties involved in a given transaction. This laissez-faire philosophy rests upon the principle that people have property rights and they may dispose of their property as they see fit, so long as they do not infringe upon the rights of their peers. Thus, it is illegitimate for a national government to place tariffs or other taxes on imports or exports, even in retaliation for another country’s actions, because in doing so, it is only inhibiting the freedom of its citizens to buy or sell as they please. (More specifically, trade embargoes are ineffective in fighting human trafficking.)
That is the moralistic argument. Now here’s the utilitarian one: many “economic nationalists” (i.e. protectionists) believe that the U.S. should erect literal or figurative walls around its borders and laws should force consumers to support only domestic producers. It is reasoned that this would keep jobs from being “exported” overseas or to Mexico and Latin America. Thus, these misguided souls believe wages could be kept higher, presumably at the expense of greedy corporations and their insidious profits. (Read G.L.C.’s blog for a lawyer’s take on laws against outsourcing.)
If this were true, then it would also be true that a state, such as Michigan, would benefit from restricting trade to within its own state borders. After all, keeping jobs in Michigan rather than having them shipped out of state would be an imperative of Michigan’s governor, just as keeping jobs in the U.S. would be the president’s. If the U.S. can produce everything Americans need, then couldn’t Michigan produce everything Michiganders need?
Can we take this logic further? Why not keep commerce restricted to products produced within a county? Within a city? Within a neighborhood? Within a household?
Pure Restrictionism
Imagine if you had to produce everything you consumed—the ultimate in trade restrictionism. Think of the time you’d waste sewing your own clothes, building furniture, hunting and/or farming for your own food and providing your own entertainment. Your standard of living would be extraordinarily low. Now imagine that trade opened up to include everyone in your county. Now you could focus on the one thing you did well—say, drawing comic books—and you could trade the comic books you produced for the clothes, furniture and food you needed. You would end up with a greater quantity and a higher quality of goods and services since the best seamstresses, woodworkers and hunter/farmers in the county would be working solely on the activities they did best, thereby increasing the total quantity and quality of goods and services produced in the county economy.
If trade then expanded to include everyone in your state, then perhaps the local seamstress would be put out of business as entrepreneurs combined to create more efficient methods of producing clothing. Maybe she’d have to take a job in the clothing factory for less pay than she previously received. But now the new clothing factory would be producing more clothes at a higher quality and a lower price than ever before. The seamstress’s dollar would stretch farther in the growing economy, and even though she may be nominally worse off than she was before, in real terms, her living standard would improve. Meanwhile, the demand for your comic books goes up as the state gives you a broader customer-base to which you can market your wares.
You should be able to get the idea. The greater you expand the pool of individuals working to produce the goods or services in which they have a comparative advantage—i.e. the activity that allows them to maximize their utility—the higher the standards of living for everyone in the country and the world. This principle is known as division of labor, and it is the building block of capitalist economics.
The Austrian Take
Now, it must be reiterated that although things like NAFTA and CAFTA might expand trade, and thus many economists see them as “good things,” the Austrian School of Economics does not. That’s because Austrians oppose government intervention into the economy, and trade agreements such as NAFTA and CAFTA are nothing but interventionist. They are agreements between nations that contain several thousands of pages of rules and restrictions designed to benefit special interests. Most people who oppose NAFTA, CAFTA and the WTO do so because they’re opposed to free trade. The Austrian school and its most prominent proponent, Ron Paul, do so for exactly the opposite reason.
Restrictions on trade are not only inefficient, but they’re also immoral. If you don’t want to support another country’s development, even though doing so would be to the immediate and long-term benefit of you and the rest of the world, then fine; don’t buy products produced there. It is hubristic to agitate for the passage of laws restricting your neighbor’s choice to do so. And the fact that 80% of Americans, the vast majority of whom regularly shop at the People’s Republic of Wal-Mart, say they want protectionist laws shows a great deal of American hubris.
So give free trade a chance. It is the traditional American view declared by Washington, echoed by Jefferson and then somehow drowned out amid the clamor of Lincoln’s war. But just like our traditional non-interventionist foreign policy, free trade is an American tradition worth revisiting. The two go together, in fact, as Washington proclaimed his support for “commerce with all nations, entangling alliances with none” in his farewell address. Maybe it’s time to listen to the man on the one-dollar bill who could not tell a lie. He certainly was telling the truth about free trade.
Related posts:
Blogs RSS feeds [
Leave a Reply