Introduction
The argument of this essay is that the United States must adopt a
policy of full free trade. In order to promote the public good it must
completely eliminate "protective" measures like tariffs and
quotas. These protect only domestic producers from foreign competition.
Instead of protecting domestic consumers, trade restrictions harm their
economic interest and violate their right to buy without government
involvement. In today's global economy, it is essential to maintain
barrier-free exchange in the use of the world's scarce resources.
Protectionism reduces both absolute and comparative advantage and causes
damaging counter-trade policies. This is aside from the fact that it can
cripple domestic industries.
In the past, international trade was restricted by high
transportation costs. These costs made local production for local
consumption efficient for many goods and services. Under those
conditions, government restrictions on trade had fewer widespread
effects than they do today. With improvements in technology, the cost
and difficulty of transportation and communication has become less
important with more goods and services being traded to the mutual
benefit of buyer and seller. Because of these innovations, the harm done
by government restrictions on trade has become more pronounced on the
individual consumer. Our argument is that a level of
"protection," that may have done little harm at one time, now
has wide-ranging consequences because of the modern phenomenon of global
economic interdependence.
Importance of Comparative Advantage
Protectionism only weakens our economy. When markets are allowed to
work, "free trade simply increases the extent of a purely domestic
market and, therefore, increases the advantage of specialization."
(1) This is where the idea of comparative advantage becomes significant.
Every nation would be better off if allowed to produce and export what
it can generate most efficiently and import only those products that it
cannot cheaply produce at home. Adam Smith, the founder of modern
economics, placed great emphasis on the division of labor and the extent
of the market as causes of the wealth of nations. (2) It is amazing that
after more than two hundred years public officials still behave as if
"protection" has really provided security for consumers.
A good example that shows how and why comparative advantage should
be practiced internationally can be seen in the case of the United
States. Based on Wallis's study, (3) suppose that the state of
Michigan decided that Arkansas frozen chicken providers were making
excessive inroads in the Michigan market, and suppose further that
Michigan (defying the constitutional prohibition against internal
tariffs) managed to impose a special levy on all frozen chicken entering
the state. This action would hardly be consistent with sound economic
principles. If Arkansas is more efficient at chicken production, and
Michigan in financial services, then the two states would be richer if
each specialized in what it does best and traded with the other.
Further, were Michigan to persist in its unwise policy, it is easy to
see that Arkansas or any other state in this position would likely
retaliate with sanctions against Michigan. Others would soon join in
these practices. This would cause a spiraling effect, leading to a
reduction in economic activity. This, in short, is roughly what occurred
in the 1930s, thanks to the U.S. Smoot-Hawley tariff, which exacerbated
the Great Depression.
It is easy to see why allowing the states to establish trade
barriers against one another would be disastrous. Following the same
economic logic, we can understand how protectionist measures on the
international level can only injure all nations. When "every major
country protects a major industry, there will be no world market for any
of them to conquer." (4) Specialization of labor is an important
building block of prosperity. It is just plain foolish to make something
you could buy cheaper from someone else. Protectionism leads to a world
of poverty and international isolation.
It is important to understand that it is people and the capital
they use that become specialized into the most productive uses. If there
is free trade between the United States and Mexico, it does not follow
that each nation will be the exclusive producer of most goods.
Automobiles, for example, may be produced by people who specialize in
that industry in both countries. This is no different from what we find
within a single country. Automobiles are produced in different states of
the United States such as California, Tennessee, and Michigan.
Automobiles are, in fact, produced in Mexico and Canada as well as in
the United States. Cars manufactured in each of these countries are sold
in all three nations. The benefits gained from specialization are the
result of workers and equipment becoming particularly suited to
manufacturing a product wherever they happen to be geographically
located.
Mutual Free Trade
Protectionist measures give domestic producers an artificial
advantage over their foreign counterparts. At first glance, such
barriers may seem to be advantageous measures that save jobs. In truth,
however, policies that exclude foreign products only hurt the global
economy and all who participate in it. Consumers in the importing nation
have to pay more for that widget--when it could have been produced and
imported from another country at a lower cost. These restrictions
undoubtedly benefit local producers but are an inefficient use of money
for everyone else.
During the Great Depression of the 1930s England raised its tariffs
to extremely high levels and used its navy to restrict the flow of goods
produced elsewhere from entering. This was accomplished at great expense
to British taxpayers and despite the efforts of many smugglers to avoid
the tariffs. Then, in 1939, Adolph Hitler generously provided this same
service to the British with the German navy and its U-boats. Moreover,
the Germans provided this service at no expense to the British
taxpayers. All costs were paid by the German people. One would expect an
outpouring of gratitude from the British for this kindness from their
German neighbors, but it was not to be. On the contrary, this was an act
of war by an implacable enemy--not the generous act of a friendly
nation. Yet, what Germany was doing to Britain was merely what the
British government had been doing to its own people only a few weeks
earlier. Indeed economically speaking, by pursuing protectionist
policies, our own government does to us in peacetime what enemy
governments do to us in time of war.
The British consumer paid dearly for the blockade of his shores,
whether it was imposed by the Germans or by his own government. In
either case, however, did not the prohibition of imports protect British
jobs? Things that otherwise could have been imported now had to be
produced domestically--even though it was more costly to do so. Yes,
jobs were protected or even "created" in industries in which
England was less efficient. But that meant that workers were no longer
available to work in industries where England was more efficient, that
is, in which it had a comparative advantage. Moving workers from where
they produce more to where they produce less is a recipe for
government-imposed poverty.
The United States, too, imposes tariffs and quotas to protect jobs
in particular industries. Just as in wartime Britain, these measures
reduce our standard of living. They make us poorer, not wealthier. Every
job "saved" in a particular industry costs consumers. Edgmand,
Moomaw, and Olson cite U.S. government figures for a number of
industries. (5) Often the cost to consumers is far more than the
worker--whose job is "saved"--receives in pay. The cost to
consumers per job "saved" in ceramic tiles, for instance, is
$225,000. This means we could pay each ceramic tile worker whose job was
"saved" $100,000 a year to do nothing and still be $125,000
better off! This illustrates the absurdity of trying to save jobs
through protection. Free trade would allow these workers to take jobs in
which they make their fellow citizens better rather than worse off.
So-called protection is just a means of impoverishing consumers to
benefit a few workers and capitalists in specific industries.
If government really wants to create jobs, there are more direct
ways. It could, for example, amputate the right arms of all house
painters. This would directly increase the number of jobs for house
painters. It has the bonus of providing an implicit affirmative action
program for a heretofore sadly neglected minority group: southpaws. This
direct action to create jobs does, of course, reduce productivity since
each painter can now produce less. Indeed, that is precisely why it
produces more jobs. The same is true in the case of protection through
tariffs and quotas. It is less transparent but, nonetheless, equally
true. Each worker is now producing less of value to consumers than he
would have in the absence of the tariff or quota.
Tariffs also reduce efficiency by preventing international
specialization. (6) If the product can be made cheaper somewhere else,
the United States should not waste resources producing it. Those who do
could be transferred to an industry that is more economically efficient.
With the emergence of specialization, each nation can efficiently
allocate resources and produce goods with the greatest quality at the
cheapest cost.
A more fundamental objection to protectionism than the argument
that it reduces the wealth of nations is that it impairs the freedom of
individuals. Each human being has a basic human right to decide for
himself what goods and services to buy and from whom to buy them. He is
free to choose. Protection takes away that right. The individual freedom
to choose is inherent in his humanness--not in his national citizenship.
As a human being he is free to buy and sell with other human beings, not
merely with other citizens of his own country. When a government imposes
protection, it violates the human rights not only of its own citizens
but those of other nations as well. If other nations choose to restrict
the freedom of their own citizens and to impoverish them in the process,
there is no reason for the United States to follow suit. American
protectionism may make the citizens of India or Pakistan worse off, but
it makes us poorer and less free. (7)
For the sake of argument, suppose that there are special cases,
particular industries in which it can be demonstrated by neutral third
parties that government protection will make Americans richer. Will the
government choose to protect these particular industries, or will it
choose industries that make the greatest contributions to political
campaigns and whose unions operate campaign telephone banks? Do you
trust this government to pick the industries to favor with the tax
payers' largesse? This is the same government that turned the
Lincoln bedroom into Motel Six and gave us Rube Goldberg's health
care plan. If you trust this government to make the correct decisions,
how about the one that gave us Iran-Contra or Watergate? Even Paul
Krugman seems to accept the fact that if a case could be made that shows
protection to be beneficial, the best policy would still be that of free
trade. (8)
If another nation were to impose protectionist measures for its
industries, should we retaliate by imposing restrictions of our own? If
we do this, we may actually contribute to the harm those citizens
already experience from their government. We do so, however, at the cost
of harming our own people and restricting our liberties. If Britain does
not maintain its ports so that it becomes more expensive to ship goods
into them or to send goods out of them, should we intentionally tear up
our ports in retaliation? Doing so just makes it more costly for both us
and them to trade. In effect, we cut off our nose to spite their face.
If they choose to inflict harm on themselves, there is no reason for us
to emulate them.
A good example of this can be seen in the case of Japan and the
United States. Japan has benefited from our markets. Yet, that country
penalizes our exports to it. One example of Japanese sanctions is the
restrictions on rice imported from the United States, which favors
Japanese rice producers. Both nations would profit if Japan abolished
these barriers. Would it be wise, then, for us to emulate the Land of
the Rising Sun and impose taxes on Japanese autos entering our country?
Not at all, despite the great demand in this country for a tit-for-tat
policy. This only harms domestic consumers, who will now have to pay
more for this product. (9)
Free international trade is part of the seamless garment of free
markets. There is no reason for a national border to imply conflict
rather than cooperation among individuals in pursuing exchanges that are
expected to be mutually beneficial. On the contrary, cultural and
geographical differences may increase the opportunities for mutual gain.
(10) In this sense, indeed, diversity is a strength.
World Free Trade
Nations have worked together to negotiate trade policies,
agreements, and legislation. Coalitions like the General Agreement on
Tariffs and Trade (GATT) and the World Trade Organization (WTO) could
play a crucial role in benefiting the world economy. Unfortunately,
these groups have other, not-so-hidden agendas. Instead of pressing for
an immediate and total declaration of free trade on the part of all
nations of the world (which would eliminate the need for the very
existence of these organizations), they attempt to promote needless and
wasteful "negotiations" on specific tariffs. Furthermore, they
seem intent upon promoting the socialist vision of labor and
environmental law. Nations involved in these alliances will certainly
lose from these agreements.
If protectionism continues to prosper on a global scale, world
trade will stagnate and living standards will not increase as fast as
they otherwise would. Only unilateral declarations of total free trade
will maximize opportunities leading to efficiency and growth. All
nations, whether highly industrialized or less developed, must leave
GATT and the WTO to act on their own.
These agreements and the permanent organizations to which they lead
are intended to manage--not free--trade. The result is not trade managed
by each nation but trade managed by an international bureaucracy. This
is yet another example of the conceit of the planner. Free economic
activity results in spontaneous order through the voluntary interaction
of individuals each seeking his own self-interest. This voluntary action
to achieve mutual benefit generates cooperation and harmony. Rules,
regulations, boards, and appeals generate winners and losers. Free trade
is not a zero sum game. All parties to voluntary cooperation expect to
benefit, otherwise they would not participate in the exchange.
Bureaucratic political processes, on the other hand, typically produce
winners and losers, often in a negative-sum game. A WTO and continual
jockeying for some national or industry advantage may (or may not) be
superior to national protectionism. However, it is not genuine free
trade.
The International Criminal Court, recently established by 120
countries, outlaws the crime of aggression. We may be certain that this
effort to ensure world peace will fail as long as the nations and
trading blocks of the world accept protectionism. As Ludwig von Mises
observed: "The philosophy of protectionism is a philosophy of
war." (11) It has often been argued that free trade diminishes the
likelihood of war because people who work together through trade for
their mutual benefit do not want these mutually beneficial relationships
interrupted. Stated another way, nations that are reciprocally dependent
upon each other will be reluctant to upset that relationship. Yet, there
is a more basic reason why free trade encourages peace. It is part of a
general philosophy of freedom. (12) It is this philosophy of freedom
that makes peaceful relations among nations much more likely, just as it
does for relations among individuals.
Protectionism is based on fear: fear of people, customs, foreign
languages, and even of change itself. Free trade means buying and
selling from people who are different from us. Successful selling and
buying requires developing an understanding and respect for the culture
and values of other people. Full participation in the global economy
requires just these kinds of changes. Adapting to change can, however,
be challenging and exhilarating. Change offers opportunities that were
previously unavailable. Entrepreneurs thrive on change and the
opportunities it brings. We live in a world of rapid technological
progress with ever-expanding opportunities for the innovator and the
risk-taker. Consumers, workers, and businesses often benefit from the
work of the innovator and entrepreneur. (13) Free trade expands the
number of entrepreneurs whose actions provide us with benefits. Free
trade literally expands the market for entrepreneurship to the benefit
of American consumers regardless of where the entrepreneurs may reside.
Conclusion
It is important that all nations, not just the United States,
totally eliminate protective trade measures. Barriers reduce efficiency
and prevent international specialization. Specialization and comparative
advantage allow each to produce according to its best advantage under
economic freedom. Nations will no longer throw their precious resources
into industries where they do not have an advantage. Exchange barriers
also lead to retaliation. If some nations impose sanctions, they should
expect to have the same action taken against them. But it is all so
unnecessary: There are still benefits from free trade even when others
cut themselves off from them. Just because you refuse to trade me for
lumber products, say, it does me no good to refuse to trade foodstuffs
with you. If there are two men in a rowboat and one of them shoots a
hole in the floorboard, it makes no sense for the other to shoot yet
another hole there. Each and every trade is mutually beneficial in the
ex ante, or anticipatory, sense. That is, if I trade you fifty cents for
a newspaper, we each value the other's possession higher than our
own. Otherwise, why would we each agree to the deal?
For the future, it is essential that countries move away from
protectionism and toward an open-door trade policy. We must acknowledge
that not every nation will submit to barrier-free trade. However, this
should not stop others from participating in world trade. Eventually
those blocking trade will realize the inefficiency of their ways and
move to less restrictive measures. If they do not, they will be
relegated to the dustbin of economic history, as now seems to be the
case for Cuba, North Korea, and several of the African countries.
A world of protection is a world that fears change, tries to stand
in the way of progress, and denies freedom. It promises safety, but
ultimately, it is the safety of the slave. It promises stability, but
its stability is the stasis of death. In contrast, a world of free trade
is a world of optimism, hope, and rapid development. It is a world of
freedom in which individuals look to the future with enthusiasm.
Ultimately, free trade and the philosophy of freedom on which it is
based are life-affirming.
Walter Block, Joseph Horton, and Debbie Walker
Department of Economics and Finance
University of Central Arkansas
Notes
(1) Michael Kinsely, "Keep Free Trade Free," in Taking
Sides: Clashing Views on Controversial Economic Issues, eds. Thomas R.
Swartz and Frank J. Bonello (Guilford, Conn.: The Dushkin Publishing
Group, Inc., 1995), 290.
(2) Adam Smith, The Wealth of Nations (New York: Random House,
Inc., 1937 [1776]), 415.
(3) Allen W. Wallis, "Protectionism: A Threat To Our
Prosperity," In Free Trade vs. Protectionism, ed. Donald
Altschiller (New York: H. W. Wilson Company, 1988).
(4) Kinsley, "Keep Free Trade Free," 301.
(5) Michael R. Edgmand, Ronald L. Moomaw, and Kent W. Olson,
Economics and Contemporary Issues, 4th ed. (Orlando: Harcourt Brace
College Publishers, 1991), 405.
(6) James Gwartney, Robert Lawson, and Walter Block, Economic
Freedom in the World (Vancouver: The Fraser Institute, 1996).
(7) Henry George, Protection or Free Trade (New York: The Robert
Schalkenbach Foundation, 1980 [1886]), 150.
(8) Cf., Paul Krugman, Pop Internationalism (Cambridge: MIT Press,
1996); and "A Raspberry for Free Trade," Slate 20 (1997).
(9) Milton and Rose Friedman, Free to Choose (New York: Harcourt
Brace Jovanovich, Inc., 1980), 40-41. See also Robert McGee, "The
Cost of Protectionism," The Asian Economic Review 32, 3 (December
1990): 347-64; A Trade Policy for Free Societies (New York: Quorum
Books, 1994); Walter Block and Robert McGee, "Ethical Aspects of
Initiating Anti-Dumping Actions," International Journal of Social
Economics 24, 6 (1997): 599-608; "Must Protectionism Violate
Rights?" International Journal of Social Economics 24, 4 (1997):
393-407.
(10) Thomas Sowell, The Economics and Politics of Race (New York:
Morrow, 1983), 19.
(11) Ludwig von Mises, Human Action: A Treatise on Economics (New
Haven: Yale University Press, 1949), 683.
(12) Joan Kennedy Taylor, ed., Free Trade: The Necessary Foundation
for the World Peace (New York: The Foundation of Economic Education,
Inc., 1986).
(13) Paul Heyne, The Economic Way of Thinking, 6th ed. (New York:
Macmillan Publishing Company, 1991), 263.