The Argument Against Free Trade

In a world of free speech, there are very few off-limit topics. You can argue that G-d does not exist, that G-d is dead, or even that G-d is on an extended holiday and liberals who may not agree with you will fight to the death for your right to argue. Nevertheless, there are still three beliefs so central to our society that should you deviate even slightly from the accepted dogma, these same liberals will be the first to tie you to the stake and supply the burning faggots. These three beliefs are:

  1. The equality of women
  2. Darwin’s theory of evolution
  3. The efficacy of free trade.

I am not prepared to argue the first two topics but I do have real problems with the efficacy of free trade.

Free trade is defined as the unrestricted export and import of goods and services. The economists’ arguments in favor of free trade are clear, well known and valid:

Ø Free trade ensures the importing country receives the best quality products and services at the lowest cost.

Ø Free trade provides jobs and foreign exchange to exporting countries.

Ø Free trade provides developing countries an opportunity to industrialize.

Ø Free trade does not increase unemployment in importing countries.

Ø And, at the present time, the most important argument: Protectionist barriers will drag the current recession into a global depression, just as the Smoot-Hawley tariff of 1930 did.

All these economists’ arguments are indisputable — provided they remain limited to economics. The moment we move away from this narrow area, the arguments fall apart.

The truth is free trade does not exist, has never existed and no sane person would ever want to live in a free trade world. Who among us wants a system which allows exports of weapons of mass destruction to Iran, or any military hardware to North Korea? Governments must have the right to restrict imports of toxic milk products, flammable babywear, or contaminated medicine. Likewise governments must have the right to deny entry to airlines who fail to maintain their equipment, or the flow of funds to terrorist organizations. Yet all these restrictions are limitations of free trade.

Doubtless, economists can argue that these examples are so far outside the normally accepted concept of free trade that they become the proverbial exceptions that prove the rule. After all free trade is important but, practically speaking, matters of life and death trump free trade. This is a good argument, but it misses the point. How does one define “matters of life and death”? Are not global pollution and global pollution “matters of life and death”? More people die each year from pollution-related diseases than all the soldiers in WWI. In this sense, are not unprotected coal-powered electric generation plants weapons of mass destruction?

The government of Germany does not allow the import of garments dyed with AZO dye-stuff because of pollution concerns. Is this an acceptable exception to free trade? And, if so, what other pollution and global-warming concerns are grounds for acceptable exceptions?

The fact remains that once the protectionist camel sticks his nose under the free trade tent, the whole concept begins to lose meaning. In fact, I suggest that the relationship between international trade and the environment will become the single greatest source trade restrictions in the near future. Must a country permit the importation of products that cause pollution? Must a country permit the importation of products when their manufacture caused pollution?

The country that relies on polluting coal-powered electric generating plants enjoys a financial cost advantage over their trading partners that demand eco-friendly electric power generation. Their lower cost electricity is a subsidy on their export products which provides an unfair cost advantage. In the name of free trade, is an importing country forced to accept subsidized products and simultaneously forced to import the added pollution?

Up to the present time, this has been a moot argument. The U.S. Government has done little or nothing to limit pollution and global warming and as a result cannot complain when their trading partners follow the same non-policies. However, the Obama administration is bringing a new pro-active eco-friendly policy which comes with two price tags:

  1. A higher direct cost. A polluting coal-powered electric generation plant costs $800 mn. That same plant minus the pollution and global warming costs $3 bn.

  1. A higher indirect cost. The cost of every product requiring an electric power source is affected. Those using the polluting source are more competitive.

Despite the current recession, the industrialized importing country might still be willing to pay the higher direct costs in order to reduce pollution and global warming. After all, these are serious problems requiring immediate solutions. But it is highly unlikely that they will make the enormous investment to cut their pollution and global warming while simultaneously subsidizing the export pollution and global warming from their trading partners.

At the end of the day, the argument is not between free trade and protectionism. No one wants free trade and everyone agrees that some protection is necessary. The question is, how we do we define necessary protection.

Provided we define protectionism in economic terms — protection of local companies and local jobs — protectionism makes sense. But when we define in protectionism in survival terms — protection of the very world we live in — free trade makes no sense. Pollution and global warming are global problems. They too are exports and imports — and they should be limited.

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537 Responses to The Argument Against Free Trade

  1. kevie says:

    can you please elaborate,on how Free trade does not increase unemployment in the importing country

    • admin says:

      The argument about free trade and unemployment is about 300 years old, dating back to Adam Smith
      The theory is that countries do not export every product in which they have an advantage over their neighbors. Rather they export those product in which they have a comparative advantage. For example, if a country has a 5% advantage in grain, but a 20% advantage in computer software that country will devote its efforts in computer software even to the extent that it will import grain.

      A great deal has been written about the theory of comparative advantage and most economists accept the idea.

      One point is clear. Autarky (an economy that supplies all its needs internally and therefore has no need to import anything) has never worked in the long run; although the U.S. in the immediate post-war era did achieve a measure of independence from imports

      DAVID

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