Traders of the Lost Ark

74 Pages·2017·1.58 MB·English

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The Competitive Enterprise Institute D
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promotes the institutions of liberty S
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Lost Ark

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Rediscovering a Moral and
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COMPETITIVE ENTERPRISE INSTITUTE M
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1310 L Street NW, 7th Floor IT
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Washington, DC 20005 E
E IAIN MURRAY & RYAN YOUNG
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202-331-1010 TE With contributions by FRED L. SMITH JR., MARC SCRIBNER,
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P DANIEL PRESS, AND RYAN KHURANA
cei.org R
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AUGUST 2018 | NO. 4
Traders of the
Lost Ark
Rediscovering a Moral
and Economic Case
for Free Trade
Iain Murray and Ryan Young
With contributions by Fred L. Smith Jr., Marc
Scribner, Daniel Press, and Ryan Khurana
Competitive Enterprise Institute
2018

MurrayandYoung:TradersoftheLostArk
FOREWORD
By Daniel Hannan, MEP
“Freetrade,oneofthegreatestblessingswhichagovernmentcanconfer
on a people, is in almost every country unpopular.” So wrote Lord
Macaulay, the British poet, historian, and Member of Parliament, in
1824. His words were true then and are, if anything, even more true
today.Which is bizarre when we consider the improvements that free
trade has brought to the human condition during the intervening two
centuries.
The economic historian Deirdre McCloskey has chronicled, at vast
length,howthepast200yearshaveseenariseinlivingstandardsona
differentscalefromanythingHomosapienshadexperienceduptothat
point.InMacaulay’stime,almosteveryonesubsistedonaround$3.00
aday.ThelifeofapeasantfarmerinPolandorEthiopiaorIndiaorJapan
wouldhavebeenrecognizable,initsessentials,tohisIronAgeancestors.
Since then, our species has increased its wealth by, at a conservative
estimate,3,000percent.
Yetcleverpeoplecampaignagainstthesystemthatenabledthatsecular
miracle.Inindustrializedcountries,theyprotestthatfreetradewillshift
jobstoplaceswithlowerwagelevels;indevelopingcountries,theyfret
thatwealthycorporationswilltakeover.
Whatliesbehindthesefears?Thereare,Ithink,threeexplanations,one
psychological,oneaesthetic,andonepolitical.
First, the psychological objection. Free trade is counterintuitive. Our
hunter-gathererinstinctistoprovideagainstfamine,tohoard.Relyingon
invisible strangers for basic necessities feels wrong. Never mind that
Singapore, which imports even its drinking water, transformed itself
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from a mosquito-ridden swamp into a gleaming city state simply by
droppingbarrierstotrade.Suchfactsrunupagainstmillionsofyearsof
evolution.
Second,theaestheticobjection.Mychildren’shomeworkisfullofstories
about nasty corporations exploiting textile workers in, say, Vietnam.
Thosestorieslackanysenseofcontextorperspective.Now,youandI
wouldn’twanttoworkinaVietnamesesweatshop.Butwehavenotspent
ourlivesbendingourbacksinricepaddies.Wehavenotfledvillages
thatlackedelectricity,cleanwater,andschools.Employeesofforeign
companiesinVietnamearn210percentofthenationalaverageincome,
andtheirwagesarerising.Ifwewanttheirwagestorisefaster,andtheir
workingconditionstoimprovecommensurately,whatdoyousuppose
wouldhelp—campaigningagainstfreetradeorbuyingtheirstuff?
It’sthethird,objection,though,thepoliticalone,thatseemstoanimate
Americanprotectionists.Freetradebringsdispersedgainsbutconcen-
tratedlosses.ImportingcheapChinesesteelwouldmakealmostevery
Americanabitbetteroff,aspricesfell,productivityrose,newjobswere
created, and money was freed up for other things. But voters, being
human,wouldattributethatriseinlivingstandardstothemselves,not
tofreetrade.Thelosers,bycontrast—thesmallnumberofworkersin
industriesthatwereundercut—wouldblamethegovernmentandvote
accordingly.
Isay“smallnumbers”advisedly.Thereare,dependingonhowwedothe
counting,between80,000and150,000peopleworkingintheAmerican
steelindustry.Butthereare17millionpeopleemployedinsectorsthat
use steel, notably construction, manufacturing, and cars.As costs rise,
thesedownstreamindustrieswilllosemanymorejobsthanarepreserved
insteel.GeorgeW.Bush’s2002tariffpostponedafewjoblossesinthe
mills,butdidsoatthecostof20,000jobselsewhereintheeconomy.It
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wouldhavebeenfar,far,cheapertowriteeverysteelworkeracheckfor
notturninguptowork.
Likewisewithaluminum.AnheuserBusch,theSt.Louis-basedbrewery
conglomerate that is, on some measures, the world’s biggest beer
producer,saysthat,“theproposed10percenttaxonaluminumthreatens
20,000 U.S. manufacturing jobs that depend on the beer industry and
raisestaxesonAmericanbeerdrinkersby$347millionperyear.This
taxhurts,nothelps,Americanmanufacturing.”Thecombinedeffectof
thetwotariffs,saysastudy,willbetopreserve33,000jobsinsteeland
aluminumwhiledestroying179,000elsewhere.
And that’s before we get to the international consequences: alienation
ofallies,retaliatorytariffs,lossofglobalinfluence—and,notleast,the
appallingprecedentsetbydefiningCanadiansteelimportsasathreatto
U.S.nationalsecurity.
DonaldTrumpassuresusthat“tradewarsaregood,andeasytowin,”
buthismilitarymetaphoris180-degreeswrong.Inawar,youblockade
enemycombatantstomakethempoorer.Atariff,bycontrast,isablockade
against yourself.As the 19th-century economist Henry George put it,
“Whatprotectionteachesusistodotoourselvesintimeofpeacewhat
enemiesseektodotousintimeofwar.”
Sure enough, others are “retaliating” by hurting their own consumers.
Jean-Claude Juncker, president of the European Commission, boasts
that, “we, too, can do stupid,” and slaps duties onAmerican vehicles,
jeans,andbourbon.(“HittheChevywithalevy,taxyourwhiskeyand
rye,” was how a chortling headline-writer in London’s normally staid
CityAM summarized his announcement.) In other words, the EU is
effectively saying: “You wanna drop rocks in your harbors, Trump?
Fine,we’lldropbiggerrocksinours!How’dyalikethat?”
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IgavethefirstwordtoLordMacaulay,thegreatestWhigpoliticianof
the 19th century. Let me give the last to Ronald Reagan, the greatest
Republicanpoliticianofthe20th.
Ourpeacefultradingpartnersarenotourenemies;theyareour
allies. We should beware of the demagogues who are ready to
declareatradewaragainstourfriends—weakeningoureconomy,
ournationalsecurity,andtheentirefreeworld—allwhilecynically
waving theAmerican flag. The expansion of the international
economy is not a foreign invasion; it is anAmerican triumph,
one we worked hard to achieve, and something central to our
visionofapeacefulandprosperousworldoffreedom.

DanielHannanisawriter,journalist,andpresidentoftheInitiativefor

Free Trade. He has spent 18 years as a Member of the European

Parliament, representing South East England. He is the author of nine

books, including New York Times bestseller, Inventing Freedom:

HowtheEnglish-SpeakingPeoplesMadetheModernWorld, and the

Sunday Times bestseller,VoteLeave. His latest book is What Next:

HowtoGettheBestfromBrexit.
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EXECUTIVE SUMMARY
Thebasicprinciplesofafreesocietyaretimeless,buttheyneedtobe
relearnedeverygeneration.Oneofthoseprinciplesisthefreedomfor
peopletotradefreelywithoneanother—bothwithinnationsandacross
borders.Thecaseinfavoroffreetradehasbeenuncontroversialamong
economists since the time ofAdam Smith, but support among policy
makersandthepublichasebbedandflowedwiththepoliticalwinds.
Now,withtheTrumpadministrationraisingtariffsandothertradebarriers
againstCanada,Mexico,theEuropeanUnion,andChina,theongoing
liberalization process that began in the aftermath of World War II is
experiencingthegreatestthreatithasyetfaced.
As of this writing, it is too early to tell if the administration’s actions
areablipinalongertrendormarkthestartofafull-onreversal.Either
way,thetimehascometorestatetheeconomicandmoralcaseforfree
trade for the current generation of policy makers and the interested
public. With that as its aim, this paper provides a comprehensive case
forthefreeexchangeofgoodsandserviceswithoutgovernmentrestraint.
It makes the case that people should be free to trade with whomever
they want, whenever they want, and however they want, without
governmentinterference.Inaddition,itoffersageneralexplanationof
how global trading works, places that discussion in historical context,
providesataxonomyofthedifferenttypesoftradebarriers,andoutlines
theargumentsforandagainstparticulartradepolicies.Mostimportantly,
itmakesthecaseforfreetradeasapolicythatisinherentlymoral,in
additiontobeingeconomicallysound.
Thisexecutivesummarycontainsabrieflistofactionspolicymakers
shouldtaketoopenmarketsandimproveeconomicgrowthbothhere
andabroad.
• Ideally, policy makers should lower tariffs and other trade
barriers regardless of what other countries do. Even acting
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alone, the U.S. can reap economic benefits and provide a
positiveleadershipexamplefortherestoftheworldtofollow.
• Shortofthat,CongressshouldrepealSection232oftheTrade
ExpansionActof1962andSections201and301oftheTrade
Act of 1974. These legislative provisions give the president
thepowertoraisetariffsunilaterallybycitingnationalsecurity
concernsorunfairtradepractices.Powerofthepurse,including
raisingrevenuethroughtariffs,properlybelongswithCongress,
nottheexecutivebranch.
• Work to remove non-trade provisions from existing trade
agreements.Theseusuallyconcernissuesrelatingtointellectual
propertyandlabor,environmental,andregulatorypolicy.Thus,
theyoftenhavetheeffectofimposingregulatorystandardson
participating countries, without requisite legislation. These
areseparateissuesandshouldbetreatedseparately,inaway
thatrespectsparticipatingcountries’sovereigntyandlawmaking
processes.
• Keepnon-tradeprovisionsoutoffuturetradeagreementsfor
thereasonsnotedabove.
• Eliminate, or at least reduce anti-dumping duties, the most
costlynon-tarifftradebarrier.Inadditiontoraisingpricesfor
consumersandreducingcompetition,theyinviteretaliation,
whichmakesthemdoublyharmful.
• Endsubsidiesandfavorablefinancingdealsforexporters.In
addition to inviting foreign retaliation, they makeAmerican
companieslesscompetitivebyencouragingthemtoredirect
resources away from value creation and toward political
maneuvering.
• Respect the World Trade Organization’s (WTO) dispute
resolutionprocess.TheU.S.canusetheprocesstoitsadvantage
to get other countries to lower their trade barriers.America
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leading by example is crucial in this area. The WTO lacks
bindingauthority,soitsliberalizingeffortsrelyonitsmembers’
playinghonestlybytherules.
In making the case for free trade, we seek to dispel some common
fallaciessurroundingtrade.
• Trademustbewin-win,orelseitwouldnotoccurinthefirst
place.Tradeisapositivesumproposition.Peopleonlyagree
totradewitheachotherwhenbothexpecttobenefit.Forone
persontogain,itisnotnecessaryforanothertolose.
• Countriesdonottradewithoneanother;peopledo.Tradeis
not a collective phenomenon; it is an individual one. When
peopleinChinatradewithpeopleinAmerica,onecountryis
not “beating” the other on trade. It means people in both
countries are making mutually beneficial deals with one
another.Inthatsense,alltradeisbalanced.
• Tradedeficitsareworsethanuselessasaguidetopolicy.To
illustrate, most of us run a persistent trade deficit with our
local grocery store—we buy more from it than it buys from
us—yet we all benefit from that trading relationship. Many
Americansarehappytotradecashforgoods,whilemanyof
ourtradingpartnersseekcashpayments—sotheytradewith
one another. Overseas dollars eventually return in the form
of direct foreign investment. Foreign investors with dollars
alsobuyuplargeamountsofgovernmentdebt,whichhelps
to keep the government’s interest rates low. In the case of
government debt, the policy problem is government over-
spending,nottrade.
• Freetradedoesnotmeanfewerjobs—ormorejobs—butthe
rightjobs.Tradeaffectsthetypesofjobs,nottheirnumber.The
sizeofthelaborforcedependsonthesizeofthepopulation;
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