Global free trade is about individual, not national, freedom—for consumers and producers who import raw materials, tools, and semi-finished products.
Aside from its role as an aspect of personal liberty, free trade's efficiency benefits have been well-established since the early 19th century. In this respect, domestic and global trade are the same. Trade restrictions disrupt the productive process, making it less efficient and hence less beneficial to consumers. "All that a tariff can achieve," Ludwig von Mises wrote in Human Action, "is to divert production from those locations in which the output per unit of input is higher to locations in which it is lower. It does not increase production; it curtails it." But people's interests are in expanded, not curtailed, production.
Unfortunately, free trade does not enjoy wide support today. Both major parties oppose it. They don't even pay lip service to it. They think buyers, especially consumers, buy the wrong things from the wrong people. Consumers are an unruly and capricious bunch. They prefer less-expensive, high-quality foreign-made products over more-expensive, lower-quality American-made products. What's overlooked is that they also upset American businesses and workers for reasons other than foreign competition, such as innovation and changing tastes. Also overlooked is that if we can get a better deal from abroad, American labor and resources are freed up for other things.
Government policy favors producers (including workers) over consumers and intermediate buyers. This is idiotic since, as Adam Smith pointed out: "Consumption is the sole end and purpose of all production." This doesn't mean that the government should favor consumers. It means laissez faire.
No one has argued for the wisdom of unfettered international exchange than Henry George. In his 1886 book, Protection or Free Trade, George wrote: "Free trade consists simply in letting people buy and sell as they want to buy and sell. It is protection that requires force, for it consists in preventing people from doing what they want to do."
This runs contrary to the view of the two major parties, which believe that individual liberty should be tolerated only if it conforms to the "national interest" as they define it.
George added:
If Americans did not want to buy foreign goods, foreign goods could not be sold here even if there were no tariff. The efficient cause of the trade which our tariff aims to prevent is the desire of Americans to buy foreign goods, not the desire of foreign producers to sell them…. It is not from foreigners that protection preserves and defends us; it is from ourselves. [Emphasis added.]
Then comes the killer line: "What protection teaches us, is to do to ourselves in time of peace what enemies seek to do to us in time of war."
How does the protectionist respond to that? Any response would repudiate Adam Smith's wisdom. The major point of The Wealth of Nations is that well-being consists not of piles of gold in government vaults but rather of access to goods. Biden, Trump, and the anti-economists they rely on want you to forget that.
A tariff is a tax. But unlike other taxes, the aim is not to raise revenue. The purpose of a protective tariff is to raise prices and limit choice in the domestic market. That's supposed to punish the foreigner and help domestic competitors, but it's an odd way to do it because many other Americans are harmed. Even the intended beneficiaries are harmed. Many imports are not consumer products. They are inputs that American manufacturers need to make consumer products. The tariff raises producers' costs, drives marginal firms out of business, disemploys workers, and degrades the surviving firms' competitiveness internationally. Even the workers in protected industries then face higher consumer prices, offsetting the benefits they expected from the tariff.
As the British free traders used to say: incomes buy more under free trade. That means incomes buy less under protectionism.
Protectionism squanders scarce resources, restricts individual freedom, and hampers the pursuit of happiness. "This is the crux of the matter," Mises wrote. "All the subtlety and hair-splitting wasted in the effort to invalidate this fundamental thesis are vain."
Hear, hear! Yes, we consumers are "unruly", perversely refusing to channel our purchasing dollars exactly as our rulers would have us direct them, even though, in their own minds, they have a picture of the best of all possible worlds, which clearly cannot be achieved if people are allowed to make their own decisions!
ReplyDeleteThe emotional appeal of protectionism is hard to overcome: specific individuals can be dredged up who have been hurt by foreign competition, and who deserve our support, surely, in the form of a tariff. The people harmed are Bastiat's unseen.
One counter-argument would be to say, all right then, sounds great, but why stop there? Shouldn't states erect barriers to trade across their borders? And counties? And cities? Any trade between parties A and B must hurt party C, who had hoped to trade with A, so doesn't C deserve government protection? Unfortunately, such an argument would fly past many, who in essence believe that the government SHOULD, in fact, support everybody, using magical government fairy-dust.