Today, The Wall Street Journal reports:
WASHINGTON — In a bid to revive support for free trade within the U.S., the Obama administration plans to press foreign nations to increase imports of U.S. agriculture and manufacturing — but not to push so hard as to ignite a protectionist backlash.
“In order to save trade, we’ve got to deal more honestly with those who feel like [trade's] benefits haven’t been manifested for them,” U.S. Trade Representative Ron Kirk said in an interview Tuesday. “We’ve got to be serious about enforcement.”
Thursday, Mr. Kirk plans to travel to Mon Valley Works, a steelmaking complex in Braddock, Pa., to tell steelworkers that the U.S. will begin regular reviews of countries whose regulations and other practices limit American exports of agriculture and manufactured goods. In agriculture, for instance, the U.S. would target health-based import restrictions that Washington considers bogus — such as bans of American pork products by Russia, China and other nations in reaction to the outbreak of H1N1 influenza.
The U.S. effort would rely largely on trying to embarrass countries into changing policies, rather than directly threatening tariffs or other commercial penalties. The U.S. could decide to refer some of the disputes to the World Trade Organization, but getting cases decided there can take years.
“One of the legitimate complaints levied against our trade policy is people feel like we just let our partners run roughshod over us,” Mr. Kirk said, at the cost of U.S. jobs. “I don’t think it’s too much to ask of our trading partners that you live by the rules that you agreed to.”
From both an economic and a philosophical perspective, there are many problems with the President’s new push on trade. From a philosophical perspective, it’s simple: the government should never interfere in trade between two consenting parties which does not produce any negative externalities. Though governments make trade deals, it is not governments or nations that trade. It is the individual citizens and firms of those nations. When two parties enter into a transaction, they reach terms that they each find beneficial. As soon as governments step in and impose regulations, taxes, tarriffs, etc., both of the original parties lose value. Each is losing some value to government. Government’s primary responsibility is to protects its citizens rights – it is a gross abuse of power when government steps into private transactions for the sake of asserting power or protecting a favored constituency.
As touched upon above, trade restrictions have adverse economic impacts for every country involved. Americans, for reasons unfathomable to me, are obsessed with protecting our auto industry. Why? Did we seek to protect the horse and carriage industry when the automobile was invented? Why would we resist exporting agricultural and manufacturing jobs overseas? I welcome the opportunity to decrease demand for lower-wage jobs and give American youth more incentive to seek higher education and professional careers. This, in fact, is one of the primary benefits of trade – specialization. For a simple example, I can just look back to my childhood. My parents instructed my brother and I to cut the lawn. This required us to complete two tasks: mowing and weed-whacking. We were told that whoever weeded the front yard, was to mow the back. And that whoever mowed the front, was to weed the back. My brother and I (with no knowledge of economics) quickly came to the conclusion that this was highly inneffective. My brother is stronger than I am, while I have always been more particular about yard work. So we quickly decided that my brother would do all the mowing and I would do all the weed-whacking. As a result, the work was faster and of higher quality. My parents’ plan for fairness was thrown out the window, but all parties to the transaction (my parents, my brother, and myself) were all better off. International trade works the same way as the economics of my parents’ lawn. If Japan is best at producing quality cars, Mexico can produe agricultural products at the lowest cost, and the U.S. offers the most desirable financial products; the U.S. should focus on financial products, where it will make the highest profit. Meanwhile, U.S. consumers benefit from the higher quality cars provided by Japan and the lower cost produce provided by Mexico. A minority of U.S. workers may suffer, but is right that an entire country should be forced to buy inferior and more expensive products for sake of a politician’s favored constituency? No. Unless we switched to an oligarchy.
Getting past general cricisms of trade restrictions, Ron Kirk’s statements are ridiculous. President Obama may, as the WSJ article claims, have tried to temper “Buy American” (i.e. protectionist) clauses in the stimulus bill, but that does not change the fact that we have adopted many protectionist policies. Plus, we are now heavily subsidizing both our auto and agricultural industries – a fact I’m sure is considered quite unfair by many of our trading partners.
Besides the global recession, we have threats and potential threats to our national security around the world. North Korea is threatening to launch nuclear missiles at Hawaii, Iran continues its posturing, we are involved in conflicts in both Iraq and Afghanistan, and Russia clearly has not given up its imperialistic ambitions for Eastern Europe. The record of history demonstrates that countries with strong economic ties are very reluctant to declare war with one another. Wars, sanctions, treaties – no policy tool can compare to the simple act of letting international trade alone. I can think of no better instrument of peace than capitalism.