Free trade vs. 'fair' trade

Posted: Aug 08, 2002 12:00 AM
Question: Who believes most in free trade -- Democrats or Republicans? The answer might surprise. An Investor's Business Daily poll asked the following question: Should U.S. trade policy have restrictions on imported goods to protect jobs, or have no restrictions to give consumers more choices and the lowest prices? Not too surprisingly, 63 percent of Democrats support restrictions. After all, many Democrats believe that immigrants threaten their jobs, and support government use to "protect" those jobs. The argument against free trade goes as follows: Through direct and indirect subsidies, foreign governments support their domestic industries, providing an unfair competitive advantage over the United States. This, say restrictionists, constitutes unfair "dumping" of "cheap" goods and services on American consumers. This also results in the displacement of American workers. Restrictionists say, "Well, I believe in free trade, as long as it's fair." But what about Republicans? Sixty percent supported restrictions, almost the same percentage as do Democrats. But the United States also restricts trade. Congress recently passed the most expensive farm bill ever, providing subsidies for those who farm cotton, rice, wheat and other crops. Also, responding to complaints by Midwestern steel manufacturers, President Bush slapped tariffs on foreign producers of certain types of steel. To protect American lumber interests, the president imposed lumber tariffs. But economics Nobel laureate F.A. Hayek, in his classic book "The Road to Serfdom," talked about the paramount importance of unrestricted free trade: "It is necessary in the first instance that the parties in the market should be free to sell and buy at any price at which they can find a partner to the transaction and that anybody should be free to produce, sell, and buy anything that may be produced or sold at all." Yet the president's steel tariffs raise prices on steel-related goods for the American people. Lumber tariffs increase the cost of housing. Farm subsidies make products more expensive. But what about the consumer? Economics Nobel laureate Milton Friedman, in "Free to Choose," said, "One voice that is hardly ever raised is the consumer's. So-called consumer special interest groups have proliferated in recent years. But you will search the news media, or the records of congressional hearings in vain, to find any record of their launching a concentrated attack on tariffs or other restrictions on imports, even though consumers are major victims of such measures." The case against "dumping" rests on the bizarre notion that American consumers do not want to pay lower prices, and, in any case, should be stopped from doing so. This creates weird lines of logic. For example, at a recent Senate hearing on Medicare senior prescription benefits, Senator Ted Kennedy, D-Mass., railed against the "greed" of the pharmaceutical companies. Kennedy accuses them of "profiteering" by charging excessive prices. Meanwhile, in Louisiana, U.S. catfish farmers asked the government to impose a nearly 200 percent duty on competing Vietnamese catfish. So far, Vietnamese catfish now take 20 percent of the domestic market, enabling consumers to pay $1.60 per pound, versus $2.40 per pound for the American variety. The Louisiana catfish farmers accuse the Vietnamese of selling catfish below cost. Economics professor George Reisman, in "Capitalism," defended the principle of free trade, even when some domestic producers lose: "The fact that it is not equally less costly for their goods to reach others does not take away the advantages to them of others' goods being able to reach them more cheaply. It would be the height of absurdity on their part to demand that inbound freight be rendered artificially more costly . . . in order to equalize the transportation costs of inbound and outbound freight." So Kennedy blasts domestic pharmaceutical companies for charging too much, while domestic catfish farmers criticize the Vietnamese for charging too little. Got that? Why do people and politicians support tariffs, despite a mountain of evidence demonstrating their destructiveness? In "Basic Economics: A Citizen's Guide to the Economy," economist Thomas Sowell says, "At any given time, a protective tariff or other import restriction may provide immediate relief to a particular industry and thus gain the financial and political support of corporations and labor unions in that industry. But, like many political benefits, it comes at the expense of others who may not be as organized, as visible, or as vocal. Economists have long blamed the international trade restrictions around the world for needlessly prolonging the worldwide depression of the 1930s. Economists, however, do not have many votes. Nor do many of the voters know much economics." While 63 percent of Democrats supported restrictions, and 60 percent of Republicans did as well, every living president and living secretary of state supported NAFTA and GATT. But Economics 101 continues to bump up against Reality Politics 101. In short, free trade makes good economics, but all too often, makes bad politics.