08 March 2011

Often Overlooked

There are a number of problems that the so called free-trade proponents make when arguing for increased trade with foreign business.  Most are quite small, but some are significant, and bear discussing.

The first thing that many proponents of free trade overlook when arguing for increased trade is that corporations are government entities.  This is easily demonstrated by noting that corporations exist only as legal concepts for the purpose of determining (really, limiting) legal and civil liability.  This point is crucial, for it means that trade between corporations from different countries is not equivalent to trade between individuals.  In fact, trade among corporations from different countries is actually trade between government-defined, government-sponsored entities, whereas trade between two people does not have to involve government protection at all.

Another thing that free trade proponents tend to ignore is the effects of environmental regulation.  Most free trade proponents are willing to say that the government should not interfere in such a manner, but do not seem to realize that the proper response to such interference is not increased foreign trade, but rather a removal of distortional government interference.  As such, the call for more trade actually exacerbates the underlying problem, as it does not allow the market to naturally respond to the underlying problem.

The same is true of minimum wage.  Free trade proponents often ignore the effects of minimum wage on foreign trade, leading to policy recommendations that are counter to national interests.  American workers are legally prohibited, in many instances, of competing with foreign labor via price mechanisms.  This naturally encourages businesses to seek labor overseas, where it is cheaper.  Again, free trade proponents support a policy that obfuscates the effects of government intervention.

In addition, free trade proponents ignore the existence of the state.  While my preference is for a stateless society, I realize that this desire is nothing more than wishful thinking.  As such, my analysis is based, to the greatest extent possible, in observable reality.  The simple fact of the matter is that the state exists, and its primary objective is to ensure that it seeks what is best for its citizens.

Along with that, it is important to remember that any tax the government imposes will be directly or indirectly detrimental to consumers.  There is no exception.  Therefore, if the government must impose taxes, it will by nature end up harming consumers.  Thus, tax policy should accept this condition as a given.

In keeping with the above principle, it should be concluded that the most beneficial tax policy is one that favors national industry.  This means, then, that tariffs are the best type of tax policy, for they impose no more harm to consumers than would otherwise be the case while also offering protection to national industry.

Thus, it should be obvious that there are very few free trade proponents who present arguments based in reality while demonstrating concern for their fellow citizens.  Instead, they defend further government interference in order to cover up the ill effects of prior interference while also ignoring reality and optimal tax policy.  Really, it is time for them to reconsider their position.


  1. "Industry" is a statistical aggregation, and to treat it as a single collective entity is to misstate the reality of the situation. Trade barriers don't "protect national industry", they protect certain politically-connected industrial sectors, mostly at the expense of other sectors of the nation's industrial economy.

    All taxes harm business and consumers by subtracting value directly from the economy. But tariffs, in addition to doing this, also set up artificial and arbitrary barriers to entry in certain businesses. At least an income or capital gains or property or consumption tax can be written so as to apply equally to all applicable transactions and thus minimize the amount of malinvestment encouraged.

  2. @Matt- if a universal tariff is imposed (i.e. one tax rate applied to all imports equally), than there are no favors granted to a specific industry. Also, I support only tariffs. I do not support quotas or other restrictions/barriers. In fact, the only policy I argued for was a single tariff, universally applied. (Incidentally, this is an aggregation as well, making my comparison to industrial aggregation correct.)

    "But tariffs, in addition to doing this, also set up artificial and arbitrary barriers to entry in certain businesses."

    They set up barriers to entry for foreign businesses, which is favorable for American businesses. Yes, this harms consumers, but so do all taxes. The question is, can we set up a tax that doesn't harm American businesses? The answer is found in tariffs.