America Is Hardly a Bastion of Free Trade

Home » April 2017 » America Is Hardly a Bastion of Free Trade

by Andrew N. Smith

Rhetoric has recently trumped reality. It has become a misconceived bit of common “knowledge” that the United States of America is a bastion of free trade. Little could be further from the truth. The “freest” nation on earth, as we are taught to believe, imposes a staggering number of tariffs, import and export bans, sanctions and embargoes. Yet somehow “free trade” is blamed for the financial ills of the unemployed in the formerly industrial Midwest. Instead of taking a serious look at our existing trade policies, and maybe reducing some of the regulations, President Trump promised Midwesterners that their inefficient factor jobs that have been outsourced to the “right to work” south and overseas will be brought back by imposing new import taxes on specific companies. It is a naïve and ignorant notion that singling out countries and taxing the goods they import into the US will somehow help the unemployed while having absolutely no effect on the country’s general productivity and standard of living. Besides, we’ve already been doing that for far too long.

The US imposes tariffs on over 12,000 different goods and services. No that is not a typo — over 12,000. Some of these tariffs are so significantly prohibitive that they are effectively outright bans. Sugar, for example, is one product that Americans get gouged on, paying an average of $277 million more per year than they should. That is $277 million per year that would otherwise be used to consume other goods, invested in growing businesses, creating jobs, and raising real wages. This is nothing new. The original tariff was imposed as a “temporary” protection for US sugar farmers, that was more than 80 years ago. It has protected US sugar farmers, but has also decreased the productivity of the sugar farmers’ land. The laws of absolute and comparative advantage would dictate that the land on which sugar cane and sugar beets are grown and harvested should be used to produce goods in which these particular regions can more (cost and time) efficiently produce.

Sugar is not the only good, not by a long shot. Even America’s favorite snack while watching America’s “favorite” past time — peanuts — are significantly more expensive than they otherwise would be because of measures to “protect” the US peanut farming industry. Specifically, the government imposes a 131.8 percent ad valorem tax on shelled nuts, even higher tariffs are applied to unshelled peanuts. The peanut farming industry is a $1 billion industry, annually. The question is how much are those numbers padded by the tariff, and how much less would consumers be paying for peanuts if peanut farmers weren’t a privileged class. A further example that demonstrates how inefficient these tariffs are is the import tax and quotas placed on rubber tires. In 2012, President Obama bragged about creating “over” 1,000 jobs in the tire manufacturing industry resulting from the measure. One account estimates that in 2011 alone Americans paid an additional $1.1 billion for tires, or roughly $900,000 per “job created,” than they otherwise would have. The same estimation concludes that 2 retail jobs were lost for every 1 manufacturing job created by the tax. Tariffs are not the only way that the US government engages in what many would call “fair trade” instead of flat out free trade. Embargoes placed on several countries for so-called diplomatic purposes also distort international trade. Worse than the distortions they create, they don’t work for diplomatic advancement either. History tells us — and as 19th century classical liberal Otto T. Mallery (and many others before and since) did — when goods don’t cross borders armies do. Contrary to popular belief it was not the European Union being created, it was not the United Nations mandating a beach bonfire kumbayah between countries, and it wasn’t the US military presence around the globe that has prevented another World War. It has been the increasingly open global market, the economic entanglements and the consequential benefits that nations reap when trading with others.

Before “heaping absurdity upon absurdity” as Bastiat put it in his famous essay The Petition of the Candlestick Makers maybe first we should take a look at the existing pile of absurdity that is US trade policy. To be clear, trade policies can carry many nuances. Tariffs don’t always necessarily only effect price, they could quite possibly effect profit margins of overseas corporations and create employment. They do always necessarily reduce prosperity. Even in the event that new jobs are created, they are likely to be less efficient jobs — either in cost, time or both — than their overseas counterparts. The best way to increase the number of jobs and the wages paid to those jobs is to increase the productivity of industry. First steps toward that should consist of tax reform, regulatory reduction, encouraging capital formation and accumulation, and repatriating the trillions of dollars stashed offshore as a result of high taxes and burdensome regulations. Imposing more tariffs on more goods and more countries will simply make America a less productive society. Instead we are far better off focusing on producing the goods and services that — as the law of comparative advantage dictates — we are most superior at producing.

Comment by R. Nelson Nash — “The United States of America is a bastion of free trade.” What a joke! But, Goebbels was credited with saying ‘Say something long and loud enough and people will come to believe it is true.