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Here’s a letter to a correspondent:
Mr. M__:
Thanks for your thoughtful e-mail.
With China especially in mind, you ask “How do we get other countries’ governments out of our economy in the same way we desire to get our government out of our economy? And how is such trade any more ‘free’ than its managed, politicized domestic counterpart?”
I agree that in a global economy whenever the government of country X intervenes into country X’s economy it thereby, to some extent, intervenes also into the economies of all other countries with which the people of X trade. And I agree, too, that we Americans would therefore be better off without some of these economic interventions by other governments. But these facts do nothing, I believe, to undermine the case for a policy of unilateral free trade.
First, some economic interventions by foreign governments make us better off than we’d otherwise be. When the Chinese government subsidizes Chinese exports to America, we Americans benefit from this policy of Beijing arranging for the Chinese people to pick up part of the tab for some of what we consume. While I oppose these Chinese subsidies, I do so because they unjustly harm the people of China. If I cared only about the welfare of Americans – or if I wished ill to the Chinese people – I’d support these Chinese subsidies and hope for more of them.
Second, in those not-uncommon instances when foreign-governments’ economic interventions do make us worse off than we’d be absent these interventions, as a practical matter we’re likely to suffer even more harm if our government retaliates. One reason is that our government’s retaliation – which, for its duration, unquestionably makes us even worse off – is not only unlikely to cause foreign governments to stop intervening, it’s likely to incite foreign governments to further intensify their economic interventions. Practically, then, our government’s retaliatory economic interventions will almost certainly be, for us, all pain and no gain.
I elaborate on this issue in this short 2011 article for Economic Affairs [2].
You ask if our trade with people living under highly interventionist governments can truly be called “free” and not “managed.” While such trade certainly isn’t free, and is managed, for those unfortunate foreigners, it is free and not managed for us as long and insofar as our freedom to buy and sell as we wish remains unobstructed by our government.
In discussions of policy, the terms “free trade” and “protectionism” refer to the policies of the home government. As you yourself note, we Americans have little ability to directly determine the policies of foreign governments; we have under our control only our own policies. Were our government to follow a policy of free trade, it would avoid managing our trade as it leaves each of us free to trade with the world as we find it, which is practically the best we can hope for. We lucky Americans could and should then pity the unfreedom of our foreign trading partners without demanding that our government impose on us similar shackles – shackles that would indeed make trade even more managed and less free.
Among the most pernicious of the many myths peddled by protectionists is the notion that no one can be free to trade unless everyone is free to trade. Please do not fall for this fallacy.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030