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Outsource This!
Jonathan Berry • Why free trade is better than “fair” trade
April 2004

In her article attacking NAFTA, “Ten Years of Disappointment,” (February 2004) Lia Oksman makes the case against free trade, especially free trade with poor or politically untrustworthy nations. Fortunately for those of us who believe that Dick Gephardt has no redeeming qualities whatsoever, her case for even a moderate protectionist trade policy fails utterly. In making a protectionist case declaring that free trade threatens our national security, Oksman ignores the fact that with the economy, what can be seen is never the full picture.

The single strongest argument for free trade is that the economy will produce the most and grow the fastest if everyone does what he or she is comparatively best at. This is the principle of comparative advantage, though it is somewhat beyond Yale graduate and United States Senator John Kerry. Comparative advantage is the reason why a surgeon hires a secretary, even if that surgeon is a better typist than his secretary. He will make more money if he devotes as much of his work time as possible to saving lives and uses his secretary to fill out Medicare forms, etc. For the same reason, people who can afford them often hire housekeepers, even though the man who puts away his own clothes will know better where everything is in his house. Time he spends cleaning up could be time he spends exercising an economically scarcer skill, while by hiring a maid he makes more money (read: adds more value to the economy) and at the same time gives a livelihood to someone who does not possess any particularly rare skills herself.

Unlike most protectionists, Oksman at least admits the reality of comparative advantage. Free trade permits American businesses to subcontract services that can be performed more efficiently overseas. The United States will indeed be a wealthier place. Unfortunately, insists Oksman, efficiency comes at the expense of security. We live in a world that is as competitive politically as it is economically, and trade policy must recognize that economic interdependence creates political liability. The problem is that the United States relies heavily on foreign imports for oil and manufactured goods that are vital to our economy and to our national security. If the nations of OPEC were to suddenly stop selling oil (instead of simply playing with the price of gasoline as de facto contributions to the Kerry campaign), the U.S. would be in an awfully tight spot. How would we get all of our fancy tanks, planes and ships to move? If China were to suddenly cease all trade with the U.S., perhaps even taking over and blocking off Taiwan, Japan, Vietnam, Indonesia and others, we’d be in an equally tight spot. How would we get our fancy tanks, planes and ships in the first place? The mighty American military machine and our equally mighty economy seem quite vulnerable to the dependencies supposedly introduced by free trade.

Thankfully for the have-and-eat-cake-simultaneously set, free trade hardly need interfere with national security. In fact, it is not too difficult to argue that free trade strengthens our nation’s security. Perhaps Washington’s farewell address still applies. Besides, it’s not like manufacturing doesn’t ever get insourced – Honda is the single largest private employer in central Ohio, giving more than 13,000 autoworkers jobs. If we really needed it to, the government could commandeer the Honda factories and convert them into plants for making very, very small tanks. More importantly, it’s not as if the Pentagon hasn’t set up safeguards against the reality that much of what our military needs is produced overseas. The Strategic Petroleum Reserve that some politicians are currently debating raiding is an example of just such a safeguard. The Pentagon has contingencies for invading Canada; it is a safe bet to say that they have a little steel and oil tucked away in case the entire world decides to besiege our little city on a hill. What’s more, strategic reserves are maintained simply by buying supplies off the free market – the more free trade we have, the lower prices will be, and the easier these reserves will be to maintain. Until recently, we even had a strategic helium reserve, in case we were forced to use the Hun’s own zeppelin against him.

Of course, from the free market itself comes the most damning rejoinder to protectionist arguments stressing better living (and national security) through barriers to trade. Speculators – yes, that’s right, war profiteers – are the single greatest bulwark against our nation being left high and dry in the event of Every Other Nation On Earth Attacking Us (Even Luxembourg). To borrow from Hillsdale College professor Bob Murphy’s excellent piece on the subject, let’s take the worst-case scenario – every bit of steel (or oil, or both – it doesn’t matter) used in this country is manufactured abroad. Of course, it being the worst of all possible worlds, our steel suppliers decide to make war on us. No steel is being exported to us, and thus the price of whatever steel is floating around in the economy skyrockets. Now we’re completely up Steel Creek without a paddle, right? Wrong. Any speculator worth his salt will have amassed stockpiles of imported steel before the war, when steel prices were low (or else we wouldn’t have been importing steel in the first place). Now that the supply of steel has plummeted, speculators can make an enormous amount of money, provided they aren’t discouraged from taking the risk of stockpiling in the first place by asinine laws against “gouging.” It’s simple – the greater the risk of America’s steel supply being cut off (dependent both on how much America relies on imports and the likelihood of war with America’s trade partners), the more money there can be made through steel speculation. In fact, since these speculators are guided by the market and not by fickle constituencies, it’s much more likely that they’ll actually do their job, too. This final example makes it blindingly clear: free trade poses no threat to national security whatsoever, and may actually enhance it.

This short article can hardly address every attack on free trade. Another concern regarding the alleged tension between national security and open trade is that some American money and exports go to support dictators, terrorists and all those other jackanapes, ne’er-do-wells and shiftless nincompoops that apparently populate America’s trade partner nations. Economically speaking, it benefits the United States to trade with anyone who has two widgets to rub together. Money and goods that go directly into the coffers of evildoers do pose problems for our national security, however. Keeping in mind, of course, that in general increases in prosperity lead to increases in security, American trade and security officials must examine how much of what is traded to foreign countries goes to nationalized business controlled by evil regimes. Trade with North Korea, for example, does nothing to help the North Korean people and probably need not be legal. Trade with China, however, even in light of the People’s Liberation Army’s massive holdings, does a great deal to help both the American and Chinese people. More importantly, trade with China seems to be promoting liberalization, too. Besides, economic interdependence tends to promote peace, the only environment in which trade can be sustained. In the long run, free trade creates far more solutions than it does problems. Protectionism is rarely, if ever, justifiable.

Jonathan Berry is a junior in Ezra Stiles College.


 
 

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