Demonstrators at the World Trade Organization (WTO) meeting in Seattle protested “free-trade” negotiations between various nations of the world because, the protestors claimed, free trade harms people. I too oppose the WTO but for a different reason: I favor free trade, not only because people should be free to do what they want with their own money but also because free trade improves people’s standard of living.
Free trade is simply the ability of people to trade freely with one another. Why is that a good thing? Because whenever two people enter into an exchange with one another, both of them benefit from their own individual perspective at the moment of the trade. If that were not true, they wouldn’t enter into the exchange with one another.
Therefore standards of living of people rise through the simple act of trading! For example, suppose one person has ten apples and another has ten oranges. By trading one apple for one orange, the respective standard of living of each person has increased. The corollary principle then is that whenever government interferes with the ability of people to trade with each other, people’s standard of living is lowered.
“But some nations have protectionist barriers. Don’t ‘we’ need to retaliate?” Let’s examine the fallacies of this common argument. Assume there are two nations – Freedonia and Libertonia – that have no trade barriers between them. The people of Freedonia produce cheese and wine. Those in Libertonia produce beef and juice. There is a lot of trade between the people of the two nations.
One day, a small group of politically connected people in Freedonia decide to go into the juice business. In order to protect their “infant industry,” they persuade the members of their legislature to enact protective tariffs on Libertonia juice.
Who has been harmed by the Freedonia protective tariff? The consumers in Freedonia have been harmed because they are now denied the choice of freely purchasing Libertonia juice (and probably at a lower price). And, of course, the juice producers in Libertonia have been harmed by the loss of juice sales to people in Freedonia.
Is there any reason to extend the harm to more people in Libertonia with a retaliatory tariff? Suppose for example, that the Libertonia juice producers convince their legislators to “retaliate” by imposing a restrictive tariff on Freedonia cheese. The harm has now been extended to two entirely new groups of people – Libertonia cheese consumers and Freedonia cheese producers.
What happens if there is no retaliation? While Libertonia juice producers and Freedonia juice consumers will continue to suffer harm, Libertonia consumers are still free to continue purchasing Freedonia cheese and wine and Freedonia consumers are still free to continue buying Libertonia beef. Thus the harm that the Freedonia government has done with its tariff continues to be limited to two groups of people – the consumers and producers of Libertonia juice.
What then should be done by Libertonia when Freedonia imposes protectionist tariffs on Libertonia juice? Absolutely nothing! In fact, the ideal situation would be one in which the citizens of Libertonia have constitutionally prohibited their own government from retaliating with its own protectionist tariffs against Freedonia. To repeat, when Freedonia harms its own consumers of juice with a protective tariff, what benefit is there in Libertonia’s harming its consumers of cheese and wine with a retaliatory protectionist tariff?
What then is the ideal course of action for two nations that already have trade barriers between each other? Call for trade negotiations? Enter into trade agreements? Mutually agree to reduce trade restrictions?
Free trade requires none of these things. Instead, a nation devoted to free trade should simply eliminate all of its own tariffs and import restrictions – unilaterally! No meetings. No negotiations. No trade agreements. I repeat: All that a nation should do is: Repeal its own trade restrictions!
“But the other nation might not reciprocate.” Yes, that’s possible. But again, to the extent that people are free to trade with others, to that extent they are better off. Freedonia consumers of Libertonia beef and Libertonia consumers of Freedonia cheese and wine continue to improve their standard of living even though Freedonia consumers of Libertonia juice and Libertonia producers of juice are suffering from the protective tariff that Freedonia officials have imposed. Ultimately, the answer lies in Freedonia consumers’ persuading their legislators to repeal the juice tariff that is interfering with their freedom of choice and their well-being.
Thus advocates of free trade have no use for such things as the WTO, GATT, and NAFTA. Why should people’s freedom to trade and their economic well-being depend on the whims and caprices of international politicians and bureaucrats? To advance freedom, free trade and higher standards of living for us, the American people should require the U.S. government to unilaterally repeal U.S. tariffs, import quotas, and other trade restrictions.