With recent DC politicking on both the Export-Import Bank and the Trans-Pacific Partnership, we revisit Ron Paul’s 1981 essay “The Case for Free Trade“ which explains the basics of truly free trade:
Although we think of ourselves as a free-trading nation, it takes more than 700 pages just to list all the tariffs on imported goods, and another 400 to inventory all the non-tariff restraints, such as quotas and “orderly marketing agreements.”
A tariff is a tax levied on a foreign good, to help a special interest at the expense of American consumers.
A trade restraint or marketing agreement—on the number of inexpensive Taiwanese sneakers that Americans can buy, for example—achieves the same goal, at the same cost, in a less forthright manner.
And all the trends are towards more subsidies for U.S. exporters, and more prohibitions and taxes on imports.
Trade is to be subsidized or restrained, not left to the voluntary actions of consumers and producers.
In 1930, Congress passed the Smoot-Hawley tariff bill, imposing heavy tariffs on imports, with the avowed motive of “protecting” U.S. companies and jobs. Within one year, our 25 major trading partners had retaliated with their own tariffs on American goods. World trade declined sharply, and the depression was made world-wide and longer-lasting.
Today the policy of protectionism is again gaining favor in Congress, and in other countries. But it must be fought with all our strength.
Not only does protectionism make everyone poorer—except certain special interests—but it also increases international tensions, and can lead to war.
“If a foreign country can supply us with a commodity cheaper than we ourselves can make it,” wrote Adam Smith in 1776, “better buy it of them with some part of the pro duce of our own industry, employed in a way in which we have some advantage. The general industry of the country will not therefore be diminished... but only left to find out the way in which it can be employed to the greater advantage.”
An important economic principle is called the division of labor. It states that economic efficiency, and therefore growth, is enhanced by everyone doing what he does best.
If I had to grow my own food, make my own clothes, build my own house, and teach my own children, our family’s living standard would plummet to a subsistence, or below-subsistence, level.
