Freeman

ARTICLE

We Need Free Trade In Deed As Well As Word

Free Trade Creates Wealth

JANUARY 01, 1994 by GARY M. GALLES

Filed Under : Protectionism, Free Trade

Much of the economic success of the early United States was due to the fact that the Constitution not only restricted the federal government’s ability to hurt some citizens for the benefit of others (e.g., the takings, tax uniformity, due process, and equal protection clauses), but also abolished states’ attempts to take advantage of each other through restrictions on interstate commerce (the famous commerce clause). The result was the world’s largest free trade zone. Everyone benefited, as neither the state nor federal government could impose extra burdens on mutually beneficial trades just because shipments originated across a state border.

Since then, despite the overwhelming empirical and logical evidence in its favor, free trade has been demoted from a central organizing principle for our society to one that now mostly commands lip service. Free trade, whether it is GATT, NAFTA, or some variant being discussed, still wins all the rhetorical battles. This is understandable because, after all, those countries with freer trade enjoy more personal freedoms and grow faster, and it is at heart nothing more than the simple, self-evident proposition that people who participate in voluntary trades must expect to benefit as a result, regardless of one’ s trading partner’s citizenship.

However, when it comes to actual policy details, even moves touted as toward free trade (e.g., NAFTA) are replete with restrictions (compare the length of NAFTA with how much space it takes to say “All trade barriers between the signatories will be eliminated according to the following schedule.”) Here, free trade is sacrificed to the political power of concentrated producer interests, as politicians claim to favor it in general, but oppose it in each particular case for some other reason, so free trade becomes “fair,” “balanced,” or “managed” trade in practice.

Why do politicians and their supporters claim to favor free trade, yet are so easily drawn to “but this, that, and the other” excuses for protectionism? Because virtually everyone favors a one-sided, narrow, self-interested commitment to free trade.

Each of us supports fewer restrictions on our ability to advance our own welfare. This means we want free trade when it comes to selling our own output, deciding how to produce that output, and for those who would sell their output to us, because such changes benefit us through higher sales prices and lower costs. However, it also leads almost everyone to support restrictions on their competitors, because that also benefits them. The difference is that both parties involved gain from freer trade, but the beneficiaries of restrictions gain at an even greater cost to others, who are forced to make do with inferior alternatives as a result.

Needed: A Commitment to Principle

We talk of commitment to free trade, but resort to restrictions in practice because our commitment to narrow self-interest exceeds our commitment to principle. There is always something, whether it is the trade deficit, unemployment in a particular industry, self-sufficiency, or national defense, which provides political cover for such self-serving actions.

Much of our soaring “free trade” opposition to others’ restrictions (and free trade rhetoric is one of our leading exports) springs not from commitment to its demonstrated social benefits, but because those eased restrictions will line our pockets, and free trade sounds better than “gimme money.” But when free trade threatens the wallets of protected interest groups, support for American restrictions to assure “fair” or “balanced” trade or environmental quality suddenly blossoms, because that also sounds better than “gimme money.”

Free trade creates wealth. We should favor opening others’ markets, because that would benefit both their consumers and more efficient American producers, by breaking the political stranglehold of their protected domestic producers. But free trade is beneficial for Americans just as it is for others, and helping uncompetitive American companies cheat American citizens by restricting their access to foreign products they prefer convicts us of the same crime we indict others for.

Until we teach people that free trade creates wealth from otherwise latent human abilities and that the cumulative effects of the myriad of largely obscure restrictions make almost every person worse off (those most wrapped in the government’s protective cocoon, such as labor unions, which have been given monopolistic power through labor laws, may force stiffer competition, but to call the reduction of unwarranted restrictions “unfair” would strain the meaning of the word), we will never even distantly approach the ideal of free trade. But, in Richard Weaver’s immortal phrase, “Ideas have consequences.” It is only by conforming our ideas to the truth, and by defending that truth wherever it is challenged, that free trade and liberty in general stand even a small chance of being reinvigorated.

ASSOCIATED ISSUE

January 1994

ABOUT

GARY M. GALLES

Gary M. Galles is a professor of economics at Pepperdine University. His recent books include Faulty Premises, Faulty Policies (2014) and Apostle of Peace (2013).

comments powered by Disqus

EMAIL UPDATES

* indicates required

CURRENT ISSUE

November 2014

It's been 40 years since F. A. Hayek received his Nobel Prize. His insights, particularly on the distribution of knowledge and the impossibility of economic planning, remain hugely important today. In this issue, we look back on the influence of his work. Max Borders and Craig Biddle debate whether liberty must be defended from one absolute foundation, further reflections on Scottish secession, and how technology is already changing our world for the better--including how robots, despite the unease they cause, will only accelerate this process.
Download Free PDF

PAST ISSUES

SUBSCRIBE

RENEW YOUR SUBSCRIPTION