Free trade is an interesting phenomenon. Considering it in the literal sense, one would think that free trade meant the unrestricted trade of goods without tariffs, taxes, quotas, or other arbitrary restrictions. Unfortunately, the term “free” has been hijacked at some point in our history and now means “not quite under complete government control”. Think of free trade being free like the free market is free; not free at all.
Yesterday the Congress passed three new “free” trade agreements amid much consternation throughout the nation. Some politicians thought the legislation was greatly needed to improve the economy: “At long last, we are going to do something important for the country on a bipartisan basis.” Others decided that opening the borders to more trade would only hurt the economy: “What I am seeing firsthand is devastation that these free trade agreements can do to our communities.”
Do not be taken in by the great melodramatic show of fear and delight, my friends. These so-called “free” trade agreements are nothing close to being free. Free trade would allow any business to market its products at any location around the globe with no additional requirements attached. For the simple fact of doing business in differing political boundaries companies are forced to expend enormous sums of capital just to conform to the varying requirements.
Quite possibly the biggest reason why nations impose a plethora of restrictions and taxes on foreign imports is due to the fallacy of “balance of trade”. These horror stories of cheap goods coming into a particular nation from a foreign source are pure nonsense, developed in order to control and increase power. The common story is that cheap “foreign” goods will put domestic companies out of business, thus creating more unemployment and reducing economic output. This theory falls apart quickly when examined closely.
Let us consider the typical family. There are likely only one or two main producers per family of four. Perhaps the children will expend labor for such menial tasks as washing dishes, mowing the lawn, doing laundry, et cetera, but this is minor in the scheme of things. It is unlikely that either of the main producers are farmers. So the family must import all of its food. It is also unlikely that the family possesses a nuclear reactor, coal-burning electric plant, or other power generation device so they will also need to import all of their power. Darn foreign power! The same goes for automobiles, clothes, electronics, books, hygiene materials, drugs, furniture, chemicals, and on and on. They typical family imports close to 100% of its needs because it is cheaper for them to purchase these items from “foreign” sources than to produce it themselves.
By importing cheaper “foreign” goods, an entity has a greater portion of its wealth remaining in the end for other purchases which would have been impossible previously. Yes, some domestic companies would likely go out of business due to the competition but many would thrive as they create product demand for a differing set of qualities about their product. The capital (monetary and labor) previously invested in the now-defunct companies would be transferred to new businesses which would have been unable to exist at the previously higher prices of goods.
Ultimately, there is no difference between importing “foreign” goods from another individual, family, city, county, state, nation, or continent. Every transaction is between two separate parties which makes them foreign entities unto themselves.