Australian Foreign Policy/ Foreign Affairs · Free Trade/ Foreign Investment · Liberalism · North Korea · The Donald Trump Presidency

Free trade revisited

Further to my critique in July, it is proper to refute some of the key contentions which sustain free trade ideology. These arguments–and their flaws–could be considered as follows.

Free trade means better prices for consumers

Free trade with poorer countries in Asia, Africa and Latin America is desirable, we are advised, because it reduces prices for consumers. As summarised by the Cato Institute,

The benefits of free trade is not exports, its lower prices on things we want.

This is true in a rudimentary sense, as free trade causing production to shift towards poorer countries does allow for cheaper consumer goods.

For free traders, however, their embellished submission is that tariffs have a *correspondingly* adverse impact on consumer prices: a 20 % tariff on clothes from China would likewise cause prices for these items to rise by 20 %. So the argument goes, free trade must be pursued at all costs to avoid such harmful outcomes for consumers.

The issue with this view, lies in its unsupported assumption that vendors will sell goods at the lowest prices possible. In reality, goods are sold so as to extract a handsome profit. By virtue of this profit motive, there exists a substantial gulf between the cost of production and the cost borne by consumers at purchase.

Due to this gulf, if a 20 % tariff were imposed on the importation of clothes from China, much of the subsequent cost would be absorbed by the vendor–to keep its prices competitive with the rest of the domestic market.

The stupendous profit margins of transnational corporations enriched by free trade only underscore this. Amazon, which earned $88.9 billion dollars for the second fiscal quarter of 2020, can more than afford a trim to its profit margins; and if pushed by economic forces to do so by reducing prices, would.

Free trade avoids conflict

Someday all barriers will fall; someday mankind, constantly united by continuous transactions, will form just one workshop, one market, and one family

said Adam Smith, the Godfather of free trade. Modern neoliberals echo this line, contending the goodness of free trade proceeds from its capacity to reduce (or even one day end) human conflict.

There are two major problems with this idea. First and on the contrary, countries along with non-State actors have rational and competing interests, which they will act upon. Once the legitimacy of pursuing these national interests is accepted, protectionism can in fact serve to reduce the prospects of full-scale military conflict breaking out between countries.

Take the relationship between North Korea and the United States, for example. Albeit limited in its potential to ultimately ‘denuclearize’ the Korean Peninsula, President Trump has established a type of Detente with North Korea, despite war appearing likely early in his first term. Achieving this state was in no small measure due to the crushing economic sanctions placed on North Korea at the UN Security Council. All of which, drew upon the cooperation of China.

To be sure, it was not the will of Xi Jinping that this cooperation was brought; but rather, the will of President Trump and his devastating tariffs which coerced China into assisting with North Korea. Largely because of these protectionist measures, the world averted what would have been its worst conflict yet, between a nuclear-armed United States and a nuclear-armed North Korea.

Yet free trade takes away this alternative course of protectionism as a way to resolve national differences, without resorting to arms.

Second, despite it being desirable to prevent unnecessary conflict, at the same time, it is myopic to seek the total abandonment of conflict. Humans are not made to be autonomous, indifferent units for pleasure seeking; we are forged to pursue passion, goodness, and transcend our individual selves–even at the cost of human life, which is fleeting in any event.

War is certainly a grave matter not to be underestimated. But a society averse to transcendental matters which could give rise to conflict–as we are 75 years on from the close of World War Two–sinks into gluttony, nihilism and despair.

We are better off in the last examination, having something to die for rather than nothing to live for.

Free trade allows for comparative advantage

Comparative advantage is the concept of an economy having a unique ability to produce particular goods at a lower cost than its trading partners. Its corollary being, countries should facilitate the comparative advantage of one another through free trade, so that goods can be produced more effectively and efficiently.

Yet with globalisation and the ensuing ease at which designs, drawings and skills can be transmitted worldwide, little in the way of comparative advantage continues to meaningfully persist. The automation of production only accentuates this, with modern manufacturing being less the fruit of a great craftsman’s labour than artificial intelligence.

In essence, the modern world has obviated virtually all prior means of establishing and exercising comparative advantage. For this reason, comparative advantage no longer has any salience in the matter of free trade.

Free trade allows for the open exchange of goods

In support of free trade and as to oppose protectionism, libertarians often protest

What right do you have to tell me who I may and may not buy things from?

Free trade does indeed facilitate the open and cross-border exchange of goods to a greater extent. Nevertheless, the above reasoning wreaks of delusion and ingratitude.

It is deluded, in assuming the individual and his selfish economic choices to be the paramount consideration for policy making. When instead, the national interest should come first. Moreover, the unit that better encapsulates human priorities is the family, not the individual. Those that see the autonomous individual as sacrosanct, take the view of a childless person that has forgotten their own childhood. In other words, this view does not encapsulate the nature of human life as it actually is.

Additionally, it is an act of ingratitude, as the insistence on what “I may and my not buy,” overestimates the extent to which economic agency can be attributable to personal actions.

As explained by the author of Free Trade Doesn’t Work, Duncan Fletcher,

Your own economic actions don’t mean anything except in the context of a system that you didn’t create. You don’t enjoy the income you enjoy — which is what gives you the very ability to buy things disputed above — solely because of your own efforts. You enjoy that income because, among other things, you were born into a society which had a per-capita GDP of $47,000 during your working lifetime.

If you’d been born in medieval Afghanistan, it would be a very different matter. And not because of anything you personally can claim credit (or deserve blame) for.

So you can’t claim that what you’ve got derives solely from your own efforts and that you are therefore entitled to do what you like with it. Robinson Crusoe can claim absolute economic freedom; you can’t.

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