Ominous signs suggest a retreat from free trade in America. According to a Wall Street Journal/NBC poll, the proportion of Americans thinking that free trade agreements hurt their country has gone from 33% in 1999 to 53% today. Republicans and Tea Partiers seem to be cooling off on free trade.
What is troubling is not the disillusion with free trade agreements as such. A good economic argument can be made that these intergovernmental treaties are not indispensible for free trade. If a government officially or unofficially declares unilateral free trade (as the U.K. government did in the 19th century), it ipso facto promotes multilateral trade for, ultimately, a foreign country can only export as much as it imports. As 19th-century economist Jean-Baptiste Say explained, products are always exchanged against other products. What is troubling is a deeper retreat from the ideal of free trade. According to another Wall Street Journal poll, some 83% of blue-collar workers and 95% of professionals and managers blame outsourcing for unemployment in America.
A retreat from free trade would negate not only a few decades of trade liberalization, but also what three centuries of economic analysis has demonstrated beyond a reasonable doubt. Free trade, whether international or within a country, only destroys unproductive jobs, that is, jobs that use too many resources to produce something that somebody else produces more efficiently.
In the process of replacing unproductive jobs with productive ones, free trade increases consumer welfare. Consumers get what they want cheaper. And the objective of economic life is not to work but to consume. Indeed, the special – often unionized – interests who agitate for protectionism hope thereby to earn more money so that they can consume more (at the expense of everybody else).
Nearly two centuries and a half ago, Adam Smith explained why it was efficient to outsource the production of wine from Scotland to France and Portugal. « By means of glasses, hotbeds, and hot walls, very good grapes can be raised in Scotland, and very good wine too can be made of them at about 30 times the expense for which at least equally good wine can be brought from foreign countries, » Smith wrote in The Wealth of Nations. « Would it be a reasonable law, » he asked, « to prohibit the importation of all foreign wines merely to encourage the making of claret and burgundy in Scotland? » Add Ricardo’s law of comparative advantages and the dynamic advantages of competition, and you have the economic argument for free international trade.
A protectionist, anti-China bill was adopted by the U.S. House of Representatives late last month (but will hopefully not pass the Senate). This bill is also an assault on free trade. The yuan, if it is undervalued, cannot be long maintained under its market value. For such an artificial undervaluation requires that the Chinese government buys more U.S. dollars and more U.S. government securities, which obviously cannot continue forever. It is true that the growth of the U.S. federal government’s debt – of which about half is held in other countries, mainly in China – provides a continuing opportunity and temptation for the Chinese authorities. But China can’t be blamed for the profligacy of the U.S. government.
A retreat from free trade would reverse the trend American (and Canadian) consumers have become used to, that is, paying decreasing prices for many of their manufactured goods. Moreover, in the short run, the growth in protectionism could start not only a second dip in the current economic slowdown, but a real depression, just as the Smoot-Hawley Act did in 1930.
And how can trade unions and other bleeding-heart protectionist interests keep looking at their social-justice face in the mirror when they want to forbid poorer workers in foreign countries to export what consumers in our countries are eager to buy? Are you listening, Paul Krugman? Forget about any arbitrarily defined « equal playing field »! What is at stake here is real justice and liberty.
Finally, an American retreat from free trade would deprive the United States of one of its most glorious contributions to the contemporary world: the championing of economic freedom and free international trade.
Pierre Lemieux est Senior Fellow à l’Institut économique de Montréal.