The Rules of Trade

by Don Boudreaux on January 25, 2017

in Myths and Fallacies, Trade

One of the most egregious misunderstandings about trade is that the government of country A should allow its people to trade freely with peoples of other countries only if governments of, and producers in, other countries “play by the rules” – which usually means “plays according to the rules that the rulers and politically powerful producer groups of country A assert other countries should play by.”  These “rules” are very often vague (for example, no “dumping” of exports) and they change according to what is politically convenient for the rulers and rent-seekers in country A.  Vague or not, or changing or not, these “rules” are almost never treaty terms or stipulations the violation of which justifies any government interference in the economic decisions of its citizens.

We all agree that no government should be allowed to force people in other countries to buy its country’s exports.  We all agree that no government should invade other countries, sponsor physical destruction and murder and rape and mayhem, or otherwise violate individuals’ rights to their persons, properties, and freedoms.

But the alleged breaking of “rules” in matters of international trade do not today involve such genuine rule-breaking.  Instead, the alleged breaking of “rules” almost always involves one or both of the following: (1) government A restricting, to a degree deemed excessive by government B, the freedom of citizens of A to buy exports from country B, or (2) government A forcing, to a degree deemed excessive by government B, the citizens of A to help citizens of B pay for exports from country A.

In short, the alleged breaking of “trade rules” almost always involves one government complaining that another government imposes excessively high import tariffs on its consumers, or doles out excessively generous subsidies to its producers.  Put differently, the alleged breaking of “trade rules” almost always involves government A complaining that government B is trying to enrich the people of A at the expense of the people of B!

It’s as if the government of A is downright hostile to the welfare of citizens of A while it is generously attentive to the welfare of the citizens of B, and the government of B is downright hostile to the welfare of citizens of B while it is generously attentive to the welfare of the citizens of A.  Of course, the reason for this bizarre form of apparent self-immolation and magnanimity by each of the governments is that, by acting in this way, each government wins the support of specific, politically powerful producer groups within its domain.  Consumers, less powerful producers, and the future all be damned!

It is, therefore, utterly inexcusable – as a matter of economics and of ethics – for government A to further restrict its citizens’ freedom to trade with the people of B on the grounds that the government of B is breaking one or both of these so-called “rules.”  And this inexcusability doesn’t disappear simply because such “rules” might be part of a trade agreement between government A and government B.  Because it wasn’t ethical to begin with for either of these governments to restrict its people’s freedom to trade, such a restriction does not miraculously become justified merely because a foreign government is interfering, or is said to interfere, excessively with its own subjects’ freedom to trade.

This case is indeed one in which two wrongs do not add up to one right.  If Jones refuses to buy from Smith as much as Williams determines Jones should buy from Smith (and, indeed, as much as Smith might like to sell to Jones), Williams has no business to forcibly restrict Smith from buying from Jones however much, and on whatever terms, Smith wishes to buy from Jones.


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