March 27, 2018 by Anders Ingemarson
Admin Note: The Federalist picked up our last article “Fracking for World Peace” under the headline “Why ‘The Father of Fracking’ Probably Deserves A Nobel Peace Prize“. Head over there and (re)read, comment, like and share to your mind’s content.
Almost exactly a year ago we wrote an article with the headline “Free Trade IS Fair Trade, Mr. President” in response to Mr. Trump’s claim that “I believe strongly in free trade but it also has to be fair trade.”
Despite our well-connected readership the message doesn’t seem to have reached the White House. So here we are, facing prospects of steel and aluminum tariffs (China and others), political meddling in corporate takeovers (Broadcom/Qualcomm), bilateral trade agreements that increase trade barriers (South Korea), and who knows what next.
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, subsidies, and regulations targeting foreign competition—is the immorality of protectionism.
Every tariff levied on, every subsidy granted to, and every regulation preventing entry of a product or service violates our inalienable individual right to trade freely with our fellow men at home and abroad (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. And regulations openly or covertly targeting foreign entities violate the rights to do business on equal terms with U.S. based companies.
It is perfectly moral for our President to use his position to put pressure on 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, subsidies, or protectionist regulation; fighting trade related rights violations abroad with like measures at home is unfair trade.
Other countries’ refusal to remove trade barriers does not give moral justification to U.S. retaliatory measures. We should loudly advertise the immorality of other countries when they tax and regulate their citizens and prevent them from getting the best deal available on imported goods. But retaliation is still a violation of the individual rights of Americans, and two wrongs don’t make a right.
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; the corporate tax cuts from last December were a step in the right direction but should be followed by more; ideally, we should lay out a path to eliminating them all together. And we should repeal regulations that force American companies to move abroad in search of a better business climate and that prevent foreign companies from entering the United States.
The result will be a massive boost to the American economy that expands the United States’ slice of the ever-growing world GDP pie leaving other countries in catch-up mode. As they see our policies bearing fruit, and as the demands for cheaper goods and services increase at home, they will start to follow our example and become less protectionist.
The business climate has improved since Mr. Trump took office. His administration and Congress deserve credit for the limited tax and regulatory reforms that have been signed into law. Let’s not reverse the gains by re-introducing immoral, individual rights violating protectionist measures. Because for trade to be fair, trade must be free.