Trade Cheaters

by Don Boudreaux on September 24, 2012

in Crony Capitalism, Other People's Money, Trade

Here’s a letter to the Wall Street Journal:

Randy Rossi complains that China cheats on its trade agreements (Letters, Sept. 24).  Sounds damning.  Upon examination, though, this complaint loses its teeth.

China’s “cheating” consists mainly in its producers selling products to willing American buyers at prices determined to be ‘too low.’  But the Americans who, in trade negotiations, set the arbitrary standards for determining if prices are too low are politicians rather than the actual men and women who, spending their own money, choose to buy imports from China.  And the Americans who complain most loudly about such “cheating” are U.S. producers who – wishing to maintain the fruits of their lobbying of U.S. politicians – legalistically assert that the appropriate standards for determining whether the terms of voluntary private exchanges are acceptable or not are found in politically negotiated trade agreements rather than in the actual voluntary exchanges between buyers and sellers.

The ultimate cheating here consists not in any violations of the arbitrary terms of trade agreements, but, rather in government’s violation of each individual’s right to trade freely.  The real cheaters are politicians and producers who officiously and greedily force their own judgments about “fair” prices upon consumers who actually pay those prices.

Sincerely,
Donald J. Boudreaux
Professor of Economics
George Mason University
Fairfax, VA  22030

Mr. Rossi, like so many mistaken people, assume that trade’s success is measured by how well domestic producers do – they assume that trade is a contest among producers chiefly for the purpose of determining which producers are ‘best.’  But trade’s only purpose is to make consumers’ better off.  Producers are only a means – an important means, to be sure, but still only a means – to that end.  Simplifying only slightly, if consumers can gain X  (1) by patronizing domestic producers, or (2) at a lower price by not patronizing domestic producers, (2) is the appropriate means of supplying X.

For the record, I believe that a great deal of good has been done over the years by bilateral and multilateral trade agreements, especially those agreements done under the auspices of the GATT and, later, the WTO.  But these are second-best procedures whose benefits are only relative to what the world would realistically be like in the absence of such agreements.  Because governments so frequently are predatory on their own citizens (trade restraints are a common instance of such predation), governments in practice typically will not reduce the amount of trade predation that they inflict upon their own citizens until and unless they persuade other governments to do the same.

The resulting benefits of such trade agreements to ordinary men and women are real enough.  But a truly enlightened or courageous government would not bother with such trade agreement.  It would adopt a policy of unilateral free trade.  Such a policy is best both economically and morally.

Only because unilateral free trade is too unlikely to be adopted by agencies that so frequently predate upon their own citizens real-world governments are agreements among governments to reduce trade restrictions a sound procedure for making trade more free.  But such agreements are unquestionably second-best in comparison with unilateral free trade.

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