Freeman

BOOK REVIEW

The Fair Trade Fraud: How Congress Pillages the Consumer and Decimates American Competitiveness

JULY 01, 1992 by RAYMOND J. KEATING

Author James Bovard sets the tone for this book by declaring at the very outset, “Fair trade is a moral delusion that could be leading to an economic catastrophe.” The remaining pages supply reasoned, empirical support for such a claim.

Bovard launches a relentless attack against protectionism masked as “fair trade.” He mercilessly exposes politicians’ moral posturing on fair trade as being nothing more than pedestrian concerns over campaign funding and re-election. More important, he illustrates why the concept of fair trade damages both U.S. consumers and producers. He manages to combine a seemingly inexhaustible supply of supporting statistics, studies, and anecdotes with a razor-sharp pen, making this not only a formidable contribution to the trade debate, but a thoroughly enjoyable book.

Bovard illustrates how “fair trade” works against low prices, voluntary agreement, competition, and “the economic values of private citizens,” in favor of high prices, government coercion, state-protected business, and “the moral and political values of federal policymakers.” The concept of fair trade set the stage for Congress to “dictate over 8,000 different taxes on imports, with tariffs as high as 458%,” the imposition of trade barriers “costing American consumers $80 billion a year—equal to over $1,200 per family,” and, in general, the impediment of economic growth by redirecting “capital and labor from relatively more productive to relatively less productive uses.” The fundamental Ricardian concept of comparative advantage eludes our elected officials.

Bovard examines the various fair-trade weapons used to wage economic warfare, and their commensurate costs. His description of tariffs is both clarifying and deliciously sardonic: “In the 1400s in Europe, wealthy nobles could go to Rome and purchase a Papal decree officially forgiving their most flagrant sins. Nowadays, American industries go to Washington to ‘atone’ for their economic mistakes by purchasing an exemption from foreign competition. A tariff is simply a decree from Congress officially forgiving an industry for all its economic sins—its incompetence, mismanagement, lethargy, contempt for its customers, and so on. If the tariff is set high enough, Congress’ economic holy water will wash away all of a company’s earthly failings.” Bovard notes, for example, that American food producers have gained over 500 tariffs on foreign food, and he decries that policymakers apparently believe that “it is better that the poor go hungry than to allow them to eat foreign food.”

Import quotas, according to Bovard, “epitomize the subjugation of economics to politics” under the presumption that “no private contract is as important as the government’s master scheme to control supply.” A revealing example of Congress’ notion of fair trade deals with ice cream: “The U.S. exports hundreds of thousands of gallons of ice cream to Canada, yet Canadian ice cream is banned from the U.S. market.” Furthermore, the “USDA [United States Department of Agriculture] estimates that dairy import quotas, price restrictions, and marketing restrictions cost American consumers between $5 and $7 billion per year. This amounts to over $50 billion in higher consumer costs since 1980, or roughly $800 per American family. For the same amount, each American family could have bought its own cow.”

Accusing foreign firms of “dumping” is another protectionist weapon wielded by fair-traders, and it is perhaps the most fraught with arbitrary bureaucratic and politically motivated rhetoric. Bovard observes: “Dumping law exists to prevent foreign companies from selling goods in the United States at ‘less than fair value.’ What is less than fair value? The Commerce Department’s creative definitions have probably made many medieval scholastics smile in heaven.”

The Commerce Department’s arbitrary determination process is perhaps best summarized by the following: “After Commerce estimates the cost of production and adds 10% overhead [even if the firm carried lower overhead costs], Commerce adds 8% profit to achieve the total ‘constructed value’ of the foreign product. If a foreign company earns a profit of 7%, Commerce will punish the company for selling at a loss of 1%.” Under such malleable criteria, dumping cases almost always result in penalties being levied on foreign firms . . . and U.S. consumers. One might say that all is fair in a trade war.

Bovard debunks other fair-trade myths, such as subsidies, the notion of reciprocity, and the so-called “level playing field.” The damage to the consumer from the imposition of protectionist measures is clear. Bovard expounds upon the many costs, showing how current trade policy “punishes American consumers for the alleged sins of foreign governments.”

Bovard goes on to point out how American industry is harmed by such measures. First, U.S. competitiveness suffers as imported inputs are restricted or taxed, thereby raising the costs and often lowering the quality of American products. Second, and more fundamental, “The fewer trade barriers the U.S. has, the more competitive American companies will be. The fewer crutches the government provides, the faster American industry will run.”

The Fair Trade Fraud should enrage American consumers, and cause many Congressmen to hang their heads in shame. Bovard declares, “The history of American trade policy vivifies the perennial economic illiteracy and moral irresponsibility of the U.S. Congress.” Perhaps our federal representatives should be assigned this book for their acts of contrition. They just might learn some basic economic principles about the benefits of free trade. 

Mr. Keating is New York Director of Citizens for a Sound Economy.

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July 1992

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