17 June 2011

Foreign Trade Revisited

The current support for free trade is based on the supposition of defending consumers from higher prices.  What the higher prices would indicate, if they were allowed to occur, is that American production is being destroyed.  The laws of supply and demand would bear this hypothesis out because the cumulative effect of domestic economic regulation is to reduce supply of goods produced.  Since demand either stays the same or increases (population trends in America aren’t negative yet), the net effect will be increasing prices.

As noted, foreign trade counterbalances potentially rising prices by increasing the supply of goods offered.  Foreign nations do not have the restrictions on labor or environmental effects that plague American businesses, which means that they can produce goods cheaply, enabling them to remain profitable.

Foreign trade, then, redirects consumption away from American producers, who could be competitive if the government allowed them, to foreign producers.  Free foreign trade policy coupled with oppressive domestic regulation has the same effect as direct subsidization of foreign business, which begs the question:  why is the American government subsidizing foreign business?

The answer is not particularly clear-cut.  Most conservatives who support free trade don’t view it as subsidizing foreign producers; they view it as defending consumers.  And most leftists don’t view foreign trade as a way of destroying business; some see it as imposing proper regulations on business.  Actually, leftists are all over the map on this.  Pro-union leftists oppose foreign trade; enviro-leftists either support it as a way to encourage raising foreign environmental standards while some oppose it as a way to encourage raising foreign environmental standards.  It might help to note that Bill Clinton signed NAFTA into law, and Paul Krugman has written a book defending free trade.

Additionally, multi-nationalists generally support free trade because it destroys national identity and power, and because it undermines the American economy.  Of course, some of the latter is America’s own doing:  there’s no need for America to handicap its own business with high taxes and excessive regulation.
At any rate, the current policy of foreign trade is quite damaging to the American economy.  This does not require import quotas and high tariffs per se, but it requires that foreign producers be held to the same standard as domestic producers if they wish to sell in America.  To have a policy which grants special advantages to foreign producers at the expense of local producers is simply asinine.

2 comments:

  1. This is what I was trying to say with my less eloquently written comments. You're on a roll, Simon.

    ReplyDelete