March 28, 2017 by Anders Ingemarson
Amidst the ACA/AHCA frenzy, Secretary of State Rex Tillerson has quietly made his first appearances around the world, and Commerce Secretary Wilbur Ross has been gearing up for trade agreement renegotiations. Let’s look beyond the administration’s anti-trade rhetoric and ask ourselves what it really ought to do to live up to the promises of enabling job creation and prosperity generation.
At his debut in front of a joint session of Congress a few weeks ago, Mr. Trump reiterated his mantra “I believe strongly in free trade but it also has to be fair trade.” The President used motorcycle manufacturer Harley-Davidson as an illustration, saying that some countries, India among them, slap a 100% tariff on imports of the company’s motorcycles, while motorcycles imported into the USA are free of tariffs. This alleged “imbalance” is what he considers unfair.
Throngs of economists and political scientists have correctly explained the folly of starting a trade war. They point to the failure of past protectionist measures such the Smoot Hawley Tariff Act signed into law by Republican president Herbert Hoover in 1930. The act and subsequent retaliatory tariffs by America’s trading partners caused a reduction in American exports and imports by more than half the next three years. This in turn deepened the Great Depression by raising both prices and unemployment. And by fueling nationalistic protectionism around the world, the act was a contributing factor to the outbreak of World War II.
Less discussed than the devastating practical implications of trade barriers—import and export tariffs and subsidies—is the immorality of protectionism. Every tariff levied on, and every subsidy granted to, a product or service violates our inalienable individual right to trade with our fellow men without government forced restrictions (with a couple of foreign policy related exceptions limiting trade with nations that we are at war with). A tariff violates the rights of every person involved in producing, getting to market, and consuming the tariffed product or service. A subsidy granted to a business for whatever reason violates the rights of the tax payers who are forced to foot the bill, and of other businesses forced to compete on unequal terms with the recipient of that subsidy.
It is perfectly moral for our President to use his position to put pressure on India and other countries to lower their trade barriers and other individual rights violating protectionist policies as long as it does not violate the individual rights of Americans. For example, membership in a military alliance with the United States could be made conditional upon the removal of trade barriers.
Our current bi- and multi-lateral trade agreements are a mix of free and unfree trade. Withdrawing from existing (NAFTA) or refusing to ratify new (TPP) trade agreements is moral on two conditions: (1) that the withdrawal does not reintroduce trade barriers that were removed as part of those agreements, and (2) that trade barriers introduced by those agreements are discontinued as part of the withdrawal.
But it is immoral to retaliate against other countries by (1) imposing new, or (2) reintroducing old, rights violating protectionist policies on products and services flowing in and out of the United States, be it in the form of tariffs or subsidies; fighting trade related rights violations abroad with like measures at home is unfair trade.
Our best trade policy is to lead by example at home. We should reinforce the protection of individual rights by unilaterally removing protectionist measures such as tariffs and subsidies. We should reduce tax rates to attract businesses and capital from around the world. And we should repeal regulations that force American companies to move abroad in search of a better business climate.
As other countries see our policies bearing fruit by expanding the United States’ slice of the ever-growing world GDP pie, they will start to follow our example. And some day, the Indian government will give in to the demands of its people for lower tariffs, and the world’s fastest Indian may be riding a Harley.
To Mr. Trump’s credit, corporate tax cuts and deregulation appear to be on the agenda although we haven’t seen much concrete action yet. If he and Congress can deliver, this alone will create more American jobs than can be filled by the current workforce. Let’s not hamper those prospects by re-introducing immoral, individual rights violating protectionist measures. Because for trade to be fair, trade must be free.