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Libertarian foreign policy: Why free trade equals prosperity

BY MICHAEL TANNER

Free trade is firmly rooted in the American tradition of free enterprise and limited government. The Founding Fathers understood the danger of trade restrictions. Benjamin Franklin said "no nation is ever ruined by free trade." Indeed, opponents of free trade are in the position of arguing that government should pick and choose winners and losers among various types of businesses and impose itself between the buyer and seller of various goods and services, an idea completely contrary to the American ideal of individual liberty and free enterprise. The right to engage in voluntary exchange transcends national boundaries.

Trade restrictions on foreign products lower the standard of living for American consumers. Tariffs, quotas, and other trade barriers are the functional equivalent of a tax, artificially raising the cost of foreign goods and increasing the price that consumers must pay. It is estimated that these practices cost American consumers at least $70 billion per year, the equivalent of $752 per U.S. household.

Tax the poor

Moreover, the structure of trade restrictions imposes a disproportionate burden on those least able to pay. The trade restriction "tax" is a regressive one. For example, a study by the Federal Reserve Bank of New York showed that import restraints were equivalent to a 66% increase in income taxes for the poorest households, but equivalent to only a 5% tax increase for upper income households. In his book, The Fair Trade Fraud, James Bovard documents numerous examples of how import restrictions, as actually practiced, discriminate against the poor. Mink coats are duty free, while polyester baby sweaters are taxed at 34.6%; orange juice carries a 40% tariff, while Perrier water carries only a 0.8% duty.

Opponents of free trade often claim that foreign competition harms American workers. However, the evidence contradicts this claim. For example, if imports harmed domestic employment, we would expect to see unemployment rise whenever the trade deficit expands. However, an analysis of trade data for the past decade reveals that exactly the opposite appears to be true. Unemployment appears to fall even as trade deficits increase.

In addition, the cost of saving jobs through protectionism is often extremely high. For example, a 1989 study by the International Trade Commission indicated that trade protection in the glassware industry preserved 2,500 U.S. jobs. However, that protection cost U.S. consumers $185.8 million per year in the form of higher prices and reduced access to glassware. That means that every job saved cost U.S. consumers $74,320 per year. Similar calculations indicate that the 400 ceramic tile jobs saved through protectionism cost consumers $225,000 per year per job, while the 2,400 jobs saved in the rubber footwear industry cost $113,000 per year. At the very least, trade protection represents an extremely expensive form of job protection!

Domestic jobs

However, trade protection actively harms workers because it can cost jobs. First, raising the cost of imports costs jobs in domestic industries that consume foreign goods. For example, protecting domestic sugar producers hampers the export of American candy bars. Denying American auto manufacturers access to low-cost imported steel drives up the cost of American-made cars and makes them less competitive on the world market.

U.S. protectionism also encourages other countries to raise barriers against U.S. goods. Nearly 20% of the U.S. economy is now related to foreign trade. Moreover, export-related jobs are high-paying jobs. Indeed, The Economist recently reported that "export-related jobs earn 17% more than average workers."

That a policy of unilateral free trade can lead to prosperity can be clearly seen from the example of Hong Kong. While its products are restricted by most nations (including the U.S.), Hong Kong levies no import tariffs and has few import barriers of any kind. Indeed, Hong Kong has one of the most accessible markets in the world.

As a result of this libertarian policy, the city enjoys one of the highest standards of living in Asia, rising wages, a buoyant capital market, and a rapidly growing economy.

Free trade is good for consumers, business, and American workers. And far better than any "managed trade" agreements negotiated by the government -- such as NAFTA and GATT -- would be unilateral action by the United States to reduce or eliminate tariffs, quotas, and other non-tariff barriers against foreign goods.

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