Free trade is beneficial whatever other countries are doing

Some trade protectionists disguise their support for high tariffs and quotas on imports by claiming that "free trade and open markets only work if both economies operate under the same rules," as U.S. Commerce Secretary Don Evans wrote recently in the Wall Street Journal.

That is false, points out economist Alan Reynolds: eliminating tariffs and quotas benefits the country that adopts those free trade policies, regardless of what other countries do.

U.S. tariffs on imported sugar, nuts and dairy products, for example, raise the cost of production of U.S. manufacturers of breakfast foods and candy, and tariffs on steel raise costs for U.S. auto and appliance manufacturers.

U.S. tariffs raise the cost of living for American consumers -- by raising prices for imported goods directly, reducing price competition between domestic and foreign makers of the same goods, and raising costs to consumer-goods manufacturers who use the types of goods imported.

Imports always rise when manufacturing output speeds up, and fall only when U.S. industry declines, says Reynolds. In fact, U.S. industries are the country’s biggest importers; but during the recession they imported less:

Industrial supplies accounted for 24.5 percent of all imported goods in 2000, and capital goods for another 28.5 percent.

From January to December 2001, imports of industrial supplies fell 33 percent, from $27.1 to $18.3 billion.

Imports of capital goods fell 22 percent, from $28.8 to $22.5 billion.

Now that U.S. economy is growing briskly the trade deficit is rising, says Reynolds, and one way to reverse that trend is to bring on a recession, which would cause the trade deficit to shrink as Americans become poorer.

Source: Alan Reynolds (Cato Institute), Protectionist Policies Harm: Fair Trade Isn't Free Trade, Investor's Business Daily, November 14, 2003.

For more on Trade Deficits http://www.ncpa.org/iss/tra/

FMF Policy Bulletin\18 November 2003