Monday, September 23, 2013

Jacob G. Hornberger: Free trade or fair trade?

  Statists on the left side of the political spectrum oftentimes attack "free-trade agreements" like NAFTA by claiming that they aren’t "fair-trade agreements." Free trade is fine, they love to say, but only if it’s fair. When they’re not fair, the "free-trade" agreements inevitably impose onerous conditions on workers, conditions that only government can rectify.

  There are at least three big problems, however, with this statist analysis.

  First, NAFTA and other "free-trade agreements" aren’t free-trade agreements at all. They are negotiated trade agreements between the governments of two nations that entail thousands of rules and regulations affecting private trading transactions between the two nations.

  That’s about as far from genuine free trade as one can get. Genuine free trade is trade that is free of government rules, regulations and control.

  What should a government do to achieve genuine free trade? Simply lift all trade restrictions on its own citizens. Unilateral free trade.

  In other words, don’t negotiate with anyone. Don’t enter into any "free-trade agreements." Just liberate the citizenry to trade with anyone anywhere in the world.

  Doesn’t that mean that foreign governments might still impose trade restrictions on their citizens? Sure, but why should that matter? As soon as the people of that nation see the wisdom in lifting trade restrictions, trade will immediately flow. No agreements have to be negotiated.

  Second, there is no way to objectively determine what is fair. Fairness is personal and subjective.

  Let’s assume that Peter owns 10 apples and John owns 10 oranges. They enter into a trade in which Peter gives John 8 apples and receives one orange in exchange.

  Is that fair? A statist would undoubtedly say no. A fair trade, he would say, would entail trading 5 apples for 5 oranges. That’s an equal trade, he’d say, one that is obviously fair.

  But the fact is that from the standpoint of Peter and John, the trade is perfectly fair because each of them benefited from it. That is, each of them gave up something he valued less for something he valued more.

  What about Peter, who gave up 8 items and only received 1 item in return. He benefited also. He placed a higher value on 1 orange than he did on 8 apples. How do we know this? Simply based on the fact that he entered into the trade. If he didn’t feel he was benefiting, he wouldn’t have entered into the trade.

  This principles of subjective value applies to every trade, including labor exchanges. When a worker agrees to work at a specified wage, in his mind he is improving his condition. Otherwise he wouldn’t enter into the exchange.

  That leads us to the third major problem with the statist analysis. When they use government to intervene in private economic exchanges by imposing provisions that government officials consider fair, they end up hurting the very people they purport to want to help. How? By scotching the deal through the imposition of terms that cause one of the parties to walk away.

  Suppose, for example, that the government requires, as a matter of fairness, for 5 apples to be traded for 5 oranges. Then the trade never takes place because it’s not worth it as far as John is concerned. Thus, in the interest of "fairness," the government has interfered with Peter’s and John’s well-being by preventing them from doing what they both wanted to do.

  Again, the principle applies across the board to every economic exchange, including labor exchanges. If the government, for example, feels a certain wage rate that has been agreed upon is "unfair" and imposes a higher wage rate, it costs the worker the job because it’s simply not worth it to the employer.

  Thus, genuine free trade is the best thing that could ever happen to people. Not only does it help liberate people to pursue happiness in their own way, it also raises their standard of living. That’s why people should reject both "free-trade agreements" like NAFTA and "fair-trade agreements" and embrace unilateral free trade.

  About the author: Jacob G. Hornberger is the founder and president of The Future of Freedom Foundation.

  This article was published by The Future of Freedom Foundation.

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