The following post was on the Cafe Hayek site
Free Trade, Unilateral by Don Boudreaux on September 15, 2009 in Trade
Free trade is justified regardless of the trade policies followed by other governments. A foreign-government’s restrictive trade policies or subsidies or high taxes or low taxes or screechy national anthem does not justify your home government restricting the freedom of you and your fellow citizens to trade as you choose.
Your government should take other governments’ trade and economic policies as given, much as we take consumer tastes and preferences as given.
If your neighbor offers to mow your lawn for free because his psychiatrist recommends such mowing as a sure cure for his depression, should you refuse his offer? If your neighbor offers to mow your lawn for free because he is convinced by some silly book of the wacky notion that exports are good and imports are bad, should you refuse his offer?
If your neighbor chooses to become utterly self-sufficient, refusing to consume anything produced outside of his own household, you might properly regret (1) that he and his family will likely become much more materially impoverished than your neighbor realizes, and (2) that you and other people in the economy will be deprived of the additions to total output that your neighbor would have added had he chosen not to cut himself off from the larger economy.
But ultimately it’s none of your business. You have no right to insist that, in the interest of a larger GDP, your neighbor must integrate himself more fully with the outside economy.
Now suppose that your self-sufficient neighbor, still refusing to consume anything not produced by his own household, offers to sell to you — say, in exchange only for a friendly smile from you — some tomatoes from his garden. You examine his tomatoes and determine them to be first-rate. Should you refuse to accept your neighbor’s tomatoes in exchange for a quick smile, on grounds that your neighbor will not, in exchange for his tomatoes, really purchase anything from you or from the outside economy? Would you make yourself richer by refusing his offer?
You may legitimately question the wisdom of your neighbor’s policies. But regardless of what you conclude, your best course of action will always be to trade freely with him, and with everyone else.
This post by Professor Don Boudreaux (Don) is one of several wherein he extols the benefits of “Free Trade”. Please note that I consider myself a capitalist, a firm believer in markets, and a proponent of international trade, limited government, low taxes, etc. Given all that, and as one commenter noted, I’m about to go off the reservation. I submit that the case noted above is as big a straw man as any ever lit at Burning Man. Worse, it demeans any rational (I am being presumptuous that others will consider my rants as rational) discussion about “Free Trade”.
In theory Don’s position is appropriate. If our neighbor chooses to beggar themselves to provide us with goods or services at foolishly low prices we should not insult them by refusing to accept their largess. Today though I want to focus on that third word, “… neighbor …”. A common definition of that word suggests one who lives if not next door then within a very short physical distance. A slightly expanded definition might include as a “neighbor” one who lives removed but who shares many traits.
In the case of nations it suggests an adjacent country. It could also mean a nation that shares sufficient traits with the US so as to be considered a friend. In any case it is a reasonable assumption that a “neighbor” shares certain traits with our selves. Now for the most part the US and Mexico do not share language, culture, history or economic status but only a border. True, those states actually bordering Mexico have a much higher degree of commonality than in states far removed. In contrast the US and Canada share language (for the most part), economic status, border, history and culture (again for the most part).
However, I submit that the two most populous nations of the world, China and India, share little with the US. Even less than Mexico does. No common language, no shared culture, no border and most importantly, vastly dissimilar economic status on a per capita basis. The nations of China and India are important economic beings on the world stage but are quite poor, per capita compared to the US. I ask, “Can we establish ‘Free Trade’ when the economics of the relationship are so vastly dissimilar?”
Don writes:”Free trade is justified regardless of the trade policies followed by other governments.”
But if the other government does not permit imports or severely limits them (via regulation or tariff) there is no trade. A largely one way transfer of goods or services in exchange for money is not trade. It is simply merchandising.
Don writes:”If your neighbor offers to mow your lawn for free because his psychiatrist recommends such mowing as a sure cure for his depression …” and he also writes:”Should you refuse to accept your neighbor’s tomatoes in exchange for a quick smile, on grounds that your neighbor will not, in exchange for his tomatoes, really purchase anything from you or from the outside economy?”
In both cases Don’s answer is to accept the free goods and services as it “… would not make you richer by refusing his offer.” This is a Clintonian answer to his rhetorical question. That is, technically accurate but not helpful. A one-time event, a limited person to person (neighbor to neighbor) exchange, a small scale transaction is usually not harmful. Extend the same event to a much larger scale and great harm can transpire.
If the neighbor offers to mow all the lawns in the city – for free – then lots of lawn service workers and companies will be out of work and may lose their companies. Is such “free trade” still a good idea? If the neighbor grows thousands of tomatoes and gives them all away for a smile then the grocers and farmers will not sell any. This will cause them to take severe economic loss.
Yes, the neighbor will purchase fuel and parts for his lawn mowers, seed and fertilizer for his tomatoes. But his labor is free. And therein lays the crux of the “Free Trade” debate. Again I ask, “Can we establish ‘Free Trade’ when the economics of the relationship are so vastly dissimilar?” As a proponent of trade I admit to be struggling with this question. Schumpeters’ “creative destruction” is all well and good for those of us who can suffer destruction and rise again. But where and how does the 25 year furniture assembly worker rise again? Where and how does the carpenter/framer rise again?
Economic transactions with China, India and any of the “low cost” nations has, to a large extent been a one way transaction. These nations sell us low cost goods and/or services but do not purchase nearly as much from us. China, the poster child for this process has amassed a trillion dollar reserve out of this so-called, “Free Trade”. But what is actually being traded? It is not greater efficiency, or intellectual design or even any particular invention it is solely low cost labor. Doesn’t “Free Trade” require “comparative advantage” to be valid? That is, if I can produce bread better and easier than someone else who can build ovens really great then we can trade bread for ovens using money as a medium of exchange. But low cost labor is not, or should not be the sole comparative advantage. Should it?
What troubles me is that in the guise of “Free Trade” all that is being traded is the living standard of our working class (and to a growing degree the professional class) in exchange for cheap goods and services from China, India, et.al. In effect, we beggar our workers in order to improve the economic status of workers in these other nations. We beggar our workers in exchange for cheap goods in the name of “Free Trade” so we can all pretend to be richer.
I expect to be rhetorically pounded for this position especially as a capitalist etc. What I’m asking though is (a) is it really free trade when all we do is beggar our workers to improve the lives of workers in other nations? and (b) how can we manage trade with low cost labor nations so that we don’t beggar our workers?