26 January 2011

Why Americans Don’t Trust Free Trade

Don Boudreaux, in his latest linkage roundup, points out this interesting fact:

Here, in French, is a report on a poll that finds that 33 percent of the French want to abandon capitalism, while the number of Chinese who share this opinion is 3 percent.  As for Americans, only 39 percent of us regard “the development of international trade” to be good.  This figure is the lowest among all countries surveyed.

I can’t speak for all Americans who are distrustful of free trade, but I would be willing to bet that some people don’t trust free trade because it attempts to correct a market distortion without actually fixing the fundamental problem.

One of the causes of higher prices over the last several decades has been caused by the sheer level of government intervention in the domestic market. As I have pointed out elsewhere, the government has interfered in the market in significant ways.  It has imposed costly and onerous environmental regulation on businesses.  It has imposed costly taxes on corporations.  The government has also seen fit to interfere in the labor market as well, mandating minimum wages and mandatory benefits.

These costs are borne by consumers, for businesses have passed their costs on to buyers.  Buyers have complained about higher prices, and so the government looks to free trade.

I would imagine, then, that one of the complaints people may have is that the government has made it difficult for domestic businesses to compete with foreign businesses while simultaneously making it easier for foreign businesses to do business here.  Now, there are too many variables to account for, so it’s impossible to tell what sort of effect this has had on domestic businesses.  I would bet that it hasn’t been positive.

So, the distrust of free trade probably stems from the government trying to fix its interference in the domestic market by making it easier for foreign businesses to sell here.  This is akin to treating lung failure with oxygenated blood transfusions.  Sure, it works pretty well, at least initially.  Unfortunately, it isn’t sustainable, and it doesn’t address the underlying problem.

Perhaps, then, Americans would be more amenable to free trade if American businesses were actually free to compete as well.  Thus, deregulating the domestic market may be the key to inspiring more support for free trade.

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