Trade threats are not old. Governments all over the world have been regurgitating their same doltish trade protectionist propaganda for years. Stupid is the simplest way of describing these statist policies. Trade policy is tied in with foreign policy. Trade barriers and sanctions are dangerous and should be considered as acts of war. Diplomacy and negotiating is a much better and safer policy. Donald Trump’s dangerous rhetoric could ignite foreign conflict.
The GOP nominee has made trade a major component of his campaign, pointing to China and Mexico as his primary targets.
Trump discussed his position on trade and tariffs in the Miami debate:
“The 45% tariff is a threat. It was not a tax, it was a threat. It will be a tax if they don’t behave. Take China as an example. I have many friends, great manufacturers, they want to go into China. They can’t. China won’t let them. We talk about free trade. It’s not tree free trade; it’s stupid trade. China dumps everything that they have over here. No tax, no anything. We can’t get into China. The best manufacturers, when they get in, they have to pay a tremendous tax. The 45% is a threat that if they don’t behave, we will tax you. It doesn’t have to be 45, it could be less. But it has to be something because our country and our trade and our deals and most importantly our jobs are going to hell.?”
What Mr. Trump and other protectionist may not know, or may not want to admit, is that much of the labor in the U.S., compared to a country like China, is artificially priced higher as a result of minimum wage laws, a high corporate income tax (39%), labor unions, and a massive welfare state. Protectionist will justify their policies by arguing that labor in China is cruel and equal to slavery.
Although labor is cheap in China, the idea that it is slavery is non-sense. Comparing the current standard of living in China now to what it was years ago under heavy communist rule easily debunks this idea. The ridiculous nonsensical cliché used by protectionist is that free trade destroys jobs. This is not true. Regulatory policies enacted by all levels of government have priced out business.
The Case for Free Trade
Free trade is not a new idea, and the case for it has been made thousands of times.
In his masterpiece, The Wealth of Nations, Adam Smith makes a simple proposition:
“In every country it always is and must be the interest of the great body of the people to buy whatever they want of those who sell it cheapest. The proposition is so very manifest that it seems ridiculous to take any pains to prove it; nor could it ever have been called in question, had not the interested sophistry of merchants and manufacturers confounded the common-sense of mankind.”
Smith also wrote in 1776:
“If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage. The general industry of the country will not therefore be diminished… but only left to find out the way in which it can be employed to the greater advantage.”
Economically, there is not much of a difference between foreign and domestic goods. Just as individual Americans trade goods and services with other individuals, so do nations. The regulations that affect economic choices between individuals also affect nations. This would disprove the theory that trade is a zero-sum game, meaning that one side benefits while the other loses.
Trade, like with individuals, is a win-win impression in which individuals, or nations on the macro-level, benefit from voluntary agreement.
When there is free trade, there are higher levels of specialization, resulting in comparative advantages for individuals in a certain line of production. As a result, higher specialization creates positive economies-of-scale and makes even more cost-efficient production. Even more, people of a given nation can raise their standard of living as well income because of the higher-level of productivity that is followed by increasing supply and goods.
The mainstream media often calls the Trans-Pacific Partnership, or TPP, a “free trade deal.” However, the TPP is not at all free trade. Rather, it is an assault on free trade and the epitome of crony-capitalism.
TPP merges big government and big corporations and allows these corporations to dictate trade laws. If a company feels that another country’s trade regulation reduces its profit, it can form a tribunal and force a country to change its laws. The media coverage of the TPP has been very minimal, which is not surprising.
One positive quality about Donald Trump is that he opposes TPP. That position is certainly one thing to look forward to if elected president, and if he keeps his promise.
Free trade agreements that we often hear about in the media, like TPP and NAFTA, are just merely a means to cartelize these trade agreements with government protection; the very definition of cronyism.
Trade agreements between governments and business are dangerous to free societies. Decentralization is key as well as the point of free trade, and protectionism will only lead to more conflicts and in particular trade black markets.