Free Traders Unite!

6

October 30, 2012 by Anders Ingemarson

In the foreign policy presidential debate, supposedly in an effort to garner votes in Ohio industrial towns, both Romney and Obama accused China of granting unfair subsidies to exports to the U.S. This is a mistaken view. If the Chinese government wants to subsidize American consumers, who are we to stop them? We may express sympathy for Chinese individuals and businesses who have to pay higher taxes to finance those subsidies, but that should be the extent of our concern.

However, in case there is more substance than vote fishing to their accusations, let’s take a look at what a proper trade policy should look like. As I’ve said before, the cornerstone of our foreign policy should be to lead by example at home. As advocates for laissez-faire Capitalism, for the total separation of state and the economy, this means promoting free trade. How do we lead by example in this regard? By unilaterally removing all trade barriers – tariffs on imports, export subsidies, restrictions on the movement of labor, etc. Obviously, we should encourage others to follow the same policy, but trade agreements such as NAFTA are superfluous. If we lead by example, we will send a strong message to the world and others will follow sooner than we think.

There is one exception. Countries which represent a threat to the rights of U.S. citizens should be blockaded or economically boycotted. Iran is the prime example these days. No country can survive for long under an effectively enforced U.S. blockade or economic boycott. And no, the sanctions currently imposed on Iran are neither sufficient nor effectively enforced.

Some would argue that China falls in the same category as Iran, but I think China of today is only as big a threat as we allow them to be. For instance, if our own house were in order, if our budget were balanced and our debt under control, there wouldn’t be any U.S. treasuries and government bonds for the Chinese to gobble up. If you think China is a threat, argue for government spending cuts at home to shore up our finances; don’t fall into the trap of restricting free trade.

If you’re with me thus far you may be asking “What about John in Youngstown, OH, and his colleagues who just lost their jobs because the company couldn’t compete with the Chinese?” Firstly, the main reason why some American companies cannot compete is because the Chinese have certain comparative advantages, first among them cheap labor; on the whole, Chinese export subsidies play a minor role. Secondly, and more importantly, as much as we may feel for John and his colleagues, the fact that the company went out of business does not give them a claim check on the rest of us. Nor do we have a claim on them if we’re laid off. The fact that we may lose our jobs due to low cost imports is not an argument for violating the individual rights of others; it’s not an argument for subsidizing American exports with tax dollars, or forcing others to pay a higher price at the store due to tariffs imposed on foreign goods.

Regardless of who wins the election, let’s make sure he hears the argument for free trade loud and clear. Free traders unite!

 

6 thoughts on “Free Traders Unite!

  1. Michael Rivers, CFA says:

    Well said!

  2. iskeen says:

    Anders, I agree 99%! However, I think there is always a danger of confusing people when you make an exception to principles. In this post, you make an exception for economic blockade of countries representing a threat. This is an easy mistake to make because we have been living with an appeasing foreign policy since the Korean war (at least). It makes us think that economic blockade is a principled action. In fact, economic blockade is a form of appeasement, when the target country (in this case the US) has given up the will to fight an intractable enemy.

    Unfortunately, our example with Iran is a threat that goes back to 1979 with the capture of the American embassy and the taking of hostages. If the US were truly a free market capitalist country with objective laws and a clear mission to oppose rogue governments which initiate the use of force against us, an economic blockade would actually work differently.

    An economic blockade would be an announcement to wake up the people of the world to the US opposition of the rogue state, in this case, Iran. As such, the US would not need to control trade with Iran. Congress would declare war. Congress should have declared war in 1979. The US would then say to the business people world-wide: MAKE OTHER TRADING ARRANGEMENTS. The United States has declared WAR on the rogue state of IRAN. Any trade with IRAN for any purpose whatsoever, is subject to military action without compensation by the US, no exceptions. This includes oil shipments from Iran and relief shipments to the people of Iran.

    After such announcement, the military blockade would commence.

    A government at war should simply warn that ANYONE shipping goods to or from the rogue state runs the risk of losing their entire investment, end of story.

    If the US had done that in 1979, we would be a lot stronger for it and the Iranian people would not persist in the fantasy that their cause is just.

    • Irene, good points. I don’t know if a blockade would have to be preceded by a declaration of war? I have to think about that. Ayn Rand mentioned blockade as an option to deal with Cuba in her Playboy interview but I don’t know if the context assumed a declaration of war or not (see excerpt in ARL – http://aynrandlexicon.com/lexicon/foreign_policy.html). Re. our foreign policy of appeasement, I think we set us up for ’79 by allowing Iran and the Arab countries to nationalize the oil owned by Western oil companies back in the 50′ and early 60’s. Cheers!

  3. Mike says:

    I saw a tv program that followed the workers of a textile mill that closed. They all whined about the Chinese taking their jobs. By the next year every worker except one (she chose to retire early) had a job that paid better than their textile job. Americans should do what we do best. If the Chinese can make a product cheaper or better that’s great. It frees up our workers to do higher value jobs. Also all American consumers benefit from cheaper prices by having more money to spend on other goods and services. Yay China.

  4. C.W. says:

    The situation with US international trade is even stranger, Anders. If only the politicians knew. The Chinese (and others) are subsidizing us another way. Imagine being a producer in a small, isolated community and you buy goods from your neighbors. You spend all you have and expect that your own production will be bought. The means of exchange you use is a claim on your production. But in this case, as in the world today, your neighbors only buy a portion of your production, leaving you with a significant remainder (it isn’t that your production isn’t worth buying, it is that your neighbors decide for their own reasons to keep the money – but it isn’t actually savings). So you get to enjoy both what you have purchased as well as keep much of what you produced.

    Today, of the amount of money that is spent to import foreign goods, a very large amount of dollars does not come back. This is called our trade deficit. When you balance all other transactions (like investments, government payments, private flows of funds), called the current account or the balance of payments, approximately $50B stays out of the country every month – every month! For over two decades tens of billions of dollars have remained out of the country every month. Today there is nearly as many dollars, both currency and digital dollars, outside of our borders as inside. Most is held by other governments as “reserves.” A lot is held privately for business and asset protection. Two or three countries use dollars as their currency, e.g., Panama.

    I expect that this situation will continue, especially since there is no major currency with the quantity and stability to replace the dollar in international commerce and banking. But it is possible in the future that people will decide that holding dollars isn’t in their interest any longer. When they begin to divest themselves and those dollars begin to come home, watch out. The price inflation will occur big time. There will be nothing anyone can do but ride it out.

  5. C.W. says:

    Generally, I agree with your discussion of the basic conditions of a free market. There is one other issue, however that you should include as a possible exception: foreign government ownership of US assets. Today we are seeing Chinese government owned “companies” buying assets around the world. Although it is known that these “companies” are government controlled, they are treated as if it were a private entity (professional courtesy?) As these companies are protected from the demands of profit and loss by the Chinese government, they can pursue interests that no normal company would consider. Often their interest is in acquiring technology that the Chinese can neither purchase on the open market or duplicate within their own borders. Also, it is known that the Chinese are attempting to acquire sources of raw materials that they may control without the impact of the open market.

    Rights, including property rights, belong to humans, individuals, or voluntary associations of individuals. Governments do not have rights. Foreign governments (even “friendly” ones) should not be purchasing US companies, land (except for embassies, etc.), or other assets. This restriction would not be an exception to the principles that you discussed, just a recognition of who has rights and who doesn’t.

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