Economic liberties: Free Trade

One of the common assumptions about a capitalistic society is that depressions are inevitable. Economist Nathaniel Branden defines depression as, “a large-scale decline in production and trade; it is characterized by a sharp drop in productive output, in investment, in employment and in the value of capital assets.” Based on this definition, one would have to assume that a depression is not a minor ordeal. There are many fallacies assuming that Capitalism carries intrinsic negative values, one of these being the inevitability of large-scale depressions. Understandably, the prominent school of thought on depressions is that they are caused primarily by over speculation. While this is true in part, the root causes of large-scale economic hardship are restrictions on free trade, minimum wage laws, government bailouts, and abandonment of a standard. In the weeks to follow, I will cover these methods of government intervention individually.

The principal economic liberty is free trade. This is a right, along with the right to free travel that every citizen should enjoy except those on trial for a crime, or serving sentence for a crime. The right to free trade is a property right when free trade is protected, the right to be secure in one’s possessions is protected. When trade between different countries of different economies is encouraged, efficiency and unity are also encouraged. Free trade is a right this nation was founded upon, as a large free trade zone.

Despite this, perhaps the most universally taught fallacy throughout U.S. history is the concept of protectionism. Protectionism is the notion that restrictions on imports or exports between countries, can protect industry in one of the countries involved until it improves. This is an issue that typically catches the attention of those who feel they are losing their jobs to overseas competition, as it has attracted blue-collar workers towards Donald Trump, in the 2016 election. In reality, the sheer logic involved in the defense of protectionism is faulty. A common defense for protectionism holds, that when Americans keep industry at home, rather than outsourcing production to other countries, jobs are saved and American industry is protected from foreign competition. On the contrary, protectionism does nothing but decrease affectivity. If Russia has a cheap supply of excess oil, and the United States has a cheap supply of excess copper, rather than trying to produce oil at home and close foreign trade with Russia, it is only logical to trade our excess copper with Russia, for their excess oil at the value of each good. If a shoe is produced in China for 20 dollars, but is produced in the U.S. for a hundred dollars, it makes sense to purchase the twenty dollar shoe, which is the same shoe, to save money. Yet, this is the type of efficiency which protectionism discourages. While different studies vary, the cost of protecting jobs almost always outweighs the salaries of the protected workers. One study showed that for every luggage workers job saved by import tariffs, the cost to the American consumer was $1,285,000 annually. The study also showed that, restricting foreign imports cost $199,000 annually for each textile worker’s job that was saved, $1,044,000 for each softwood lumber job saved, and $1,376,000 for every job saved in the benzenoid chemical industry. Cost-benefit analysis is an essential to economic policy and it is clear that the cost of protectionism far outweighs the benefit.

Not only does the cost dwarf the benefit in size, history tends to warn of the adverse effect of restrictions on trade. Ron Paul points out that those who are pro-war in Congress, also tend to be anti-trade. Nations that trade with each other are less likely to go to war with each other. History affirms this in the context of early 1941 when the U.S. stopped all oil flow to Japan, which was definitely a contributing factor in the bombing of Pearl Harbor later that year. There are a number of Tariffs in U.S. history, and none of them had positive results. Take for instance one of the first major tariffs in U.S. history, The Mckinley Tariff. Under this tariff, the average duty on all imports was raised from 39 percent to 49.5 percent. An unexpected adverse effect of this tariff was it’s causing Canada to trade with Britain instead of the United States. From 1890 to 1894, when the increased tariff was in full effect, per capita GDP decreased by more than 2 percent, while unemployment tripled. The most well-known tariff, the Hawley-Smoot Tariff was certainly not the cause of the national depression, but at the same time, sunk the nation and the globe deeper into depression by decreasing trade. The U.S. displays a long history of failed tariffs, which caused public outcry, dating back to Jefferson’s embargo act of 1807, and to the so-called Tariff of Abominations in 1829. Part of The United States economic struggling was due to trade restriction. Perhaps it is also possible that America’s industrial success, relative to that of Europe, can also be attributed to the fact that, the U.S. was a free trade zone from sea to sea, while Europe had trade restrictions between many different countries.

Citizens should never forget their right to free trade, for it is as much of a right as the right to free speech and free assembly.


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