Trade has been a significant and controversial issue for decades, and has garnered much attention on both Republican and Democratic campaign trails. The concept of free trade, however, is often quite confused, leaving many jaded and uncertain as to the effect of its implementation, and the consequence of its violation. The advent of various trade blocs, such as the North American Free Trade Agreement (
NAFTA) and the Trans-Pacific Partnership (TPP), has further augmented the confusion, being hotly debated on all sides of the issue, some claiming that these agreements promote free trade, and others claiming that they are a detriment to free trade. Due to the rather myopic ideas of many politicians, many people are disillusioned with the concept of free trade, and America is losing in the global economy at every turn. Such a situation begs several questions — “What is free trade?” “What are the benefits of free trade?” “Is government intervention in trade ever necessary, and, if so, when is it warranted?” “What about trade agreements?”
This is a hotly contested issue, and it is essentially impossible to offer an answer that will be accepted by every conservative. This is also a very complicated subject, so I will not be able to exhaustively address it. I can only offer what I believe to be the proper view of free trade. I encourage you to do your own research, educate yourself, and establish your own opinions.
What is Free Trade?
Of course, we must define our terms. First, it is important to delineate between free trade and other enterprise terms, such as “fair trade” or “free market.” Free trade is a general policy followed by some countries participating in international commerce, in which those countries’ governments neither restrict nor prohibit the importation and/or exportation of certain goods or services to or from their respective countries. Whereas the phrase “free trade” refers to an international market (a market in which corporations and businesses from multiple countries compete), the phrase “free market” refers to a domestic market (a market in which only corporations and businesses within a certain country compete); and whereas the phrase “free trade” refers to a lack of governmental restriction on trade, the phrase “fair trade” refers to a movement that seeks mutual recognition by multiple countries of each other’s commercial rights, and often involves governmental intervention.
Second, it is important to understand the two main types of barriers to free trade: tariffs and non-tariff barriers (NTB’s) or non-tariff measures (NTM’s).
Tariffs are simply duties (taxes) laid upon the importa
tion of certain goods by the government of the nation to which they are being imported.
Robert W. Staiger, in a paper written for the World Trade Organization, defines non-tariff measures as:
“…all of the measures that governments might take other than import tariffs which can impact trade flows.”
The South African Development Community defines a non-tariff trade barrier as:
“…any obstacle to international trade that is not an import or export duty. They may take the form of import quotas, subsidies, customs delays, technical barriers, or other systems preventing or impeding trade.”
Wikipedia defines Customs as the following:
“…an authority or agency in a country responsible for collecting tariffs and for controlling the flow of goods, including animal mechanismss, transports, personal effects, and hazardous items, into and out of a country.”
In the American context, US Customs and Border Protection fulfills this role. A customs delay is when any item is held by any Customs agency or authority for inspection.
What Are the Benefits of Free Trade?
Free trade benefits both the producer and the consumer. As it regards the producer, within a free trade environment, businesses are free to compete using whatever means of trade necessary, in order to make the most and spend the least. Businesses within the domestic market are free to purchase their necessary resources from whomever is the cheapest, and businesses within the global market are free to move wherever they please, be it here in the U.S or elsewhere, according to the most business-friendly environment. A free trade environment naturally attracts business, because it allows for the most cost-effective execution of business .
For the consumer, a free trade environments beneficial in that it allows the broadest spectrum of available goods and services at the lowest price.
Unfortunately, an undesirable domestic market has compelled many corporations to move to other countries, where they can conduct business cheaper. In an effort to encourage business here, tariffs on the goods those companies export to the US have been imposed by the government. This leaves those companies with only two options: move back to the states, where their business will be less profitable, or cut off trade with the U.S. Neither option is desirable, but such is the state of things when the government becomes over-involved in trade.
The solution is not to impose more restraints on commerce; rather, it is to relinquish them. A regulation-free market results in a business-friendly environment.
When is Governmental Intervention Warranted?
History has proven that too much government intervention is inevitably detrimental to domestic commerce, while minimal government intervention proliferates prosperity; however, the founders understood that the backbone of a government is sometimes necessary to national success in the global market. This is not to say that regulation of domestic companies is necessary, but rather, that, at times, only the weight of Government is enough to ensure fairness in the free trade market. George Washington, in his Farewell address, set forth the proper view of government intervention in trade:
“Harmony, liberal intercourse with all nations, are recommended by policy, humanity, and interest. But even our commercial policy should hold an equal and impartial hand: neither seeking nor granting exclusive favors or preferences; consulting the natural course of things; diffusing and diversifying by gentle means the streams of commerce but forcing nothing; establishing with powers so disposed—in order to give to trade a stable course, to define the rights of our merchants, and to enable the government to support them.”
So, as a general rule, government should not be involved in trade; however, there are certain instances which require the hand of government to “diffuse and diversify by gentle means the streams of commerce.” For example, if a certain country were to exclude the importation of American products from their market, yet allow their products to be imported to the U.S, they would be an economic drain to us, because they would be profiting from their business here, while refusing to give us the same courtesy. American merchants would suffer, as they would lose any profit that was formerly collected from commerce with that country. In order to countervail the injurious effects of the other nation’s actions, it would be wise to impose a tariff on their goods imported here. This would allow the U.S to recuperate at least some of the profit lost from the other nation’s actions, and, more than likely, end the unjust trading policies exhibited by the them toward the U.S.
As you have probably guessed, in the event of war, it would also become necessary to block all trade with our enemies. Our enemies must not be allowed to use American goods against us, nor profit from goods sold here.
What About Trade Agreements?
Of course, any discussion of government’s involvement in trade will likely invoke questions regarding NAFTA and other trade blocs. Wikipedia defines a trade bloc as:
“A trade bloc is a type of intergovernmental agreement, often part of a regional intergovernmental organization, where regional barriers to trade, (tariffs and non-tariff barriers) are reduced or eliminated among the participating states.”
While trade blocs are intended to promote free trade, there are several consequences of trade blocs that are inherently detrimental to free trade. They are:
1. Multinationalism vs. Regionalism
In a truly free trade market, merchants from a given nation are free to trade with merchants from whatever nation they please, provided the relationship between the trading nations is favorable. This is Multinationalism. On the other hand, regional trade blocs promote a fragmented trade policy, by easing trade only with those nations participating in the trade bloc. This inadvertently makes trade with nations outside the trade bloc more difficult, as it severely tilts the competition in favor of those nations within the trade bloc. This is disingenuous to both the merchants and the economies of the nations in which they operate.
2. Loss of National Sovereignty
The mutual economic preference of regionalism inexorably causes a loss of national sovereignty. Trade blocs often bear political clauses that infringe upon national sovereignty. Political union is inevitably a detriment to free trade, as the politicians that negotiate these deals often value political expediency as greater than strong trade policies. Thus, trade blocs can often progress to agreements involving national issues other than trade. This kind of weakening is particularly likely in nations that take part in global government. Consider, for example, this excerpt from President Obama’s speech to the 71st Session of the United Nations General Assembly:
“Mercantilist policies pursued by governments with export-driven models threaten to undermine the consensus that underpins global trade.”
It seems reasonable to assume that an export-driven trade model would generate more revenue than an import-driven model. After all, a nation whose merchants sell (export) more than they buy (import) would generate more revenue than one whose merchants bought (imported) more than they sold (exported). Nonetheless, because it is necessary to President Obama’s political agenda (globalism), he proposes an unsustainable, import-driven system. This is only one example of national sovereignty being undermined by political agendas, which, as I mentioned, are often overly-considered in the drafting of trade blocs.
Moreover, this loss of national sovereignty is being proliferated by the UN’s influence on trade blocs. Consider this quote from the United Nations Independent Expert on the promotion of a democratic and equitable international order, Alfred de Zayas, on trade blocs and human rights:
“It is high time to mainstream human rights into all trade agreements and World Trade Organization ([WTO]) rules and regulations, so that trade representatives and dispute-settlers know that trade is neither a ‘stand alone’ regime nor an end in itself.”
The article also said:
“Moreover, Mr. de Zayas called for the adoption of a legally binding treaty laying down enforceable obligations by investors and transnational enterprises. A systematic follow up by the Human Rights Council to monitor the implementation of the recommendations of UN working groups, rapporteurs and independent experts is necessary.”
Remember, this opinion comes from the UN; therefore, any treaty recommended by one of their officials is intended to be a global treaty, enforced by outside agents, which would undermine national sovereignty.
A loss of national sovereignty leads to undesirable concessions. Unfortunately, trade blocs can lead to concessions that allow foreign corporations to gain a foothold in the American market. Ultimately, this is simply another manifestation of infringement on national sovereignty and the globalist agenda. For example, consider the effect of America’s economic relationship to China. China has created an environment in which many American companies can operate at significantly less cost. As a result, an immense amount of goods sold in the US are manufactured in China by American companies. This creates a tremendous dependence on the Chinese economy, and gives China a singular advantage in the American economy. The Chinese government is raking in large sums from American companies, while our economy hangs in the balance. If China’s economy should suffer, or if the Chinese government should stop allowing American companies to operate in their country, our economy would suffer enormously, if not collapse. Trade blocs also often require developed nations to make concessions for developing nations (again, this is an objective of globalism).
4. Interdependence and Globalism
The above discussion of America’s relationship to China leads us to the problem of interdependence. This problem is associated with any trade bloc, since, as I mentioned above, trade blocs only promote trade between the participating nations. This creates a vacuum for globalism; once nations lose their sovereignty and self-sufficiency, there must be some higher power. Globalism is the perfect solution, except for one problem: when the interests of many different nations are simultaneously consulted, and laws that will govern all people are created, certain basic human rights will be destroyed.
These are the problems with trade blocs. While they may be intended to stimulate economic prosperity, they are detrimental to the same. And, while many trade blocs are called “Free Trade Agreements,” they result in government interference in trade.
As a general rule, government interference in any form of commerce bears negative results. A limited government allows the people to trade as they wish, and history has proven that the citizens of any nation are more fit to solve the problems of trade than any government.
I hope this helps your understanding of free trade!
General Information on free trade:
Information on Non-tariff Trade Barriers
Robert W. Staiger’s paper, including his definition of non-tariff measures (I have not read his entire paper, and, therefore, cannot concur with his views; I did, however, find his definition and explanation of NTM’s, found in Section 2, helpful):
WTO definition of NTB’s:
Definition of trade blocs:
Information on US Customs and Border Protection:
UN article in trade blocs:
Transcript of President Obama’s Speech before the 71st Session of the United Nations General Assembly: