|
Free Trade
Free trade
(?)
consists simply in letting people buy and sell as they want to buy
and sell. Protective tariffs
(?)
are as much applications of force as are
blockading squadrons, and their objective is the same—to prevent trade. The
difference between the two is that blockading squadrons are a means whereby
nations seek to prevent their enemies from trading; protective tariffs are a
means whereby nations attempt to prevent their own people from trading.
(41)
— Henry George, nineteenth-century political economist
The principles involved in international trade
(?)
are basically the same as those underlying
any voluntary exchange. As is the case with domestic trade, international trade allows each of
the trading partners to produce and consume more goods and services than would otherwise be
possible. There are three reasons why this is so.
Video:
Does Free Trade Exploit the Poor?
First, the people of each nation benefit if they can acquire a product or service through
trade more cheaply than they can produce it domestically. Resource endowments differ
substantially across countries. Goods that are costly to produce in one country may be
economical to produce in another. For example, countries with warm, moist climates such as
Brazil and Colombia find it advantageous to specialize in the production of coffee. In
ELEMENT 2.7
People achieve higher incomes when they are free to trade with people in other countries.
113
temperate continental climates such as Moldova and Georgia, we see specialization in wine-
making and fruit orchards while Siberia exports swamp cranberries. People in Canada and
Australia, where land is abundant and population sparse, tend to specialize in land-intensive
products, such as wheat, feed grains, and beef. The citizens of Japan, where land is scarce and
the labor force highly skilled, specialize in manufacturing such items as cameras, automobiles,
and electronic products. Trade will permit each of the trading partners to use more of their
resources to produce and sell things they do well rather than having them tied up producing
things at a high cost. As a result of this specialization and trade, total output increases and
people in each country are able to achieve a higher standard of living than would otherwise be
attainable.
Second, international trade allows domestic producers and consumers to benefit from
the economies of scale typical of many large operations. This point is particularly important for
small countries. With international trade, domestic producers can operate on a larger scale and
therefore achieve lower per-unit costs than would be possible if they were solely dependent on
their domestic market. For example, trade makes it possible for textile manufacturers in
countries like Costa Rica, Guatemala, Thailand, and Vietnam to enjoy the benefits of large-
scale production. If they were unable to sell abroad, their costs per unit would be much higher
because their domestic textile markets are too small to support large, low-cost firms in this
industry. With international trade, however, textile firms in these countries can produce and sell
large quantities and compete effectively in the world market.
International trade also allows domestic consumers to benefit by purchasing from large-
scale producers abroad. Given the huge design and engineering costs of airplanes today, for
example, no country has a domestic market large enough to permit even a single airplane
manufacturer to realize fully the economies of large-scale production. With international trade,
however, Boeing and Airbus can sell many more planes, each at a lower cost. As a result,
consumers in every nation can fly in planes purchased economically from such large-scale
producers.
Third, international trade promotes competition in domestic markets and allows
consumers to purchase a wider variety of goods at lower prices. Competition from abroad
keeps domestic producers on their toes. It forces them to improve the quality of their products
114
and keep costs down. At the same time, the variety of goods available from abroad provides
consumers with a much greater array of choices than would be available without international
trade.
Governments often impose regulations that restrain international trade. These can be
tariffs (taxes on imported goods), quotas (limits on the amount imported), exchange rate
(?)
controls (artificially holding down the value of the domestic currency to discourage imports
and encourage exports), or bureaucratic regulations on importers or exporters. All such trade
restrictions increase transaction costs and reduce the gains from exchange. As Henry George
noted in the quotation at the beginning of this element, trade restraints are like a military
blockade that a nation imposes on its own people. Just as a blockade imposed by an enemy will
harm a nation, imposing a blockade in the form of trade restrictions also harms the nation.
Should any given country be considered a supporter of free trade? If there are all kinds
of products in the local shopping malls and supermarkets, it may seem reasonable to assume
the country supports free trade—but that would not necessarily be true. For example, the
average tariff in Ukraine for all industrial products exceeds 10 percent, and is up to 20 percent
for agricultural products. Imports of other products are discouraged even more, with sugar
being taxed at 50 percent and sunflower seed oil at 30 percent. In Bulgaria, tariff rates for
imports from countries outside the E.U. range from 5 percent to 45 percent. The United States
imposes quotas on dairy products, sugar, ethanol, cotton, beef, canned tuna, and tobacco.
Imports above the quotas are subject to prohibitively high tariffs.
In addition to tariffs, countries may impose quotas (numerical limits on amounts
imported) or even total bans on products from other countries, or from some countries in
particular. Tariffs, quotas, and bans can be used for purposes other than trade policies. Russia,
for example, banned almost all agricultural imports from the European Union, the United
States, Canada, Australia, and Norway in response to political disputes after the start of
conflicts with Ukraine. In 2018 and 2019, President Trump of the United States used tariff
policy in disputes with China.
Non-economists often argue that import restrictions can create jobs. As we discussed in
Part 1, Element 9, it is production of value that really matters, not jobs. If jobs were the key to
high incomes, we could easily create as many as we wanted. All of us could work one day
115
digging holes and the next day filling them up. We would all be employed, but we would also
be exceedingly poor because such jobs would not generate goods and services that people
value.
Import restrictions may appear to expand employment because the industries shielded
by restraints may increase in size or at least remain steady. This does not mean, however, that
the restrictions expand total employment. Remember the secondary effects discussed in Part 1,
Element 12. When a country erects tariffs, quotas, and other barriers limiting the ability of
foreigners to sell in that country, it is simultaneously reducing foreigners’ ability to buy from
itself. Imports
(?)
into a country simultaneously provide people in other countries with the
purchasing power they need to buy exports
(?)
from, or invest in, the importing country. Thus,
import restrictions will indirectly reduce exports. Output and employment in export industries
will decline, offsetting any jobs “saved” in the protected industries.
(42)
Trade restrictions neither create nor destroy jobs; they reshuffle them.
(43)
The
restrictions artificially direct workers and other resources toward the production of things that
are produced at a higher cost than in other countries. Output and employment shrink in areas
where a country’s resources are more productive—areas where its firms could compete
successfully in the world market if it were not for the impact of the restrictions. Thus, labor
and other resources are shifted away from areas where their productivity is high and moved
into areas where it is low. Such policies reduce both the output and income levels of countries
adopting them.
Do'stlaringiz bilan baham: | 
