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Free Trade versus Free-trade Agreements


Tags Free MarketsValue and Exchange

The Mises Institute has consistently favored free trade--the real thing--while criticizing "free-trade agreements" as mercantilism in disguise. The position is a lonely one, except that looking back history we find that the Austrians were against trade agreements from the beginning, even battling as forms of Keynesian planning. So there is a tradition here that would lead modern Austrians to oppose efforts like the North American Free Trade Agreement and all the others that have followed.

It is great that Manuel Ayau, in a book that is, for now, only available from the Universidad Francisco Marroquin, writes against trade agreements as well. This is in a book that provides an outstanding explanation of the division of labor. The title is Not a Zero-Sum Game. Here is what he says:

Free trade requires no treaties. All that is needed is to remove (unilaterally or multilaterally) artificial barriers to trade: England did this in the mid-nineteenth century, Hong Kong in the mid-twentieth century. In 1789, the Constitution of the United States need just fifty-four words to establish free trade among the states. NAFTA, the "free" trade agreement between Canada, Mexico, and the United States has two thousand pages, nine hundred of which are tariff rates.
The sheer size of these trade agreement with their myriad stipulations and controls--such as rules of origin and the corresponding inspection, verification requirements, and the interference in sovereign affairs such as labor laws--belie their name.
Trade agreements are filled with "exception." A favor is protection from foreign competition for those who wield political influence through vested interests, typically the producers of essential items. Ironically, man government efforts allow producers of basic consumer items to charge high princes, redistribution income upwards: from the poorest members of society to the privileged few. Rather than free trade these agreements create a regime of managed trade and, not least lots of expensive useless wealth-consuming jobs for bureaucrats.
To supervise and control trade between countries makes as much economic sense as supervising and controlling trade between the states or provinces of the same country....
Trade agreements have other detrimental implications. They discriminate against lower-cost imports from countries that are not part of the treat. Trade is diverted away from them to more expensive tax-exempt suppliers, in countries that signed that FTA. Now, the importers of these higher-cost goods need more foreign currency to pay for them. And as a bonus, part of the tax revenue the government gave up with the tariff exemption winds up as income of the pocket of the favored supplier.

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