Bonus Quotation of the Day…

by Don Boudreaux on November 22, 2016

in Myths and Fallacies, Trade

is David Henderson’s response – in the Comments section of this EconLog post – to the oft-made claim that trade agreements, such as NAFTA, are instruments of “managed trade”:

I’ve heard that line a lot and I’ve never understood it. Can you explain? So, for example, in the NAFTA agreement, there are substantial cuts in tariff rates. Is the fact that the rate doesn’t fall to zero what makes it “managed trade?”

I am – as I suspect David is – a proponent of unilateral free trade.  No trade agreement is necessary for a government to adopt this ideal policy.  And because real-world trade agreements universally fail to achieve complete free trade, real-world trade agreements are universally less than ideal.  Each such agreement can and should be criticized for failing to achieve an ideal that is economically not only possible, but easily economically possible and immensely beneficial.

But political realities being unavoidable – and freer trade being superior to not-freer trade – freer trade is an acceptable real-world outcome.  In my assessment (as in the assessment of many others), most so-called free-trade agreements make trade freer.  (A more-accurate name for them would be “freer-trade agreements.”)  And for this reason such agreements deserve the support of proponents of free markets if the only plausible option is the status quo of not-freer trade.

For free-market proponents to oppose freer trade because it isn’t fully free trade is akin to opposing cuts in marginal tax rates because the proposed cuts don’t eliminate taxes altogether.  It’s akin to opposing legalization of marijuana if not all drugs are legalized.  Or akin to a refusal to join with, or to support, those who oppose raising the minimum wage on the grounds that those opponents aren’t actively working for a complete abolition of minimum wages.

It is true that NAFTA, WTO agreements, TPP, and other such bilateral and multilateral freer-trade agreements leave in place many trade barriers and specify the always-too-slow timing of tariff reductions.  But these arrangements are no more instruments of “managed trade” than are government policies that prohibit the sale of some drugs, sex, and body organs – and impose taxes on the sales of all other goods, – instruments of “managed consumption.”  While I argue for eliminating all of these promotions and taxes, if such elimination isn’t politically feasible, then any move to reduce the number of prohibitions and the rate of taxation will make market freer and, hence, worthy of the support of proponents of free markets.


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