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All trade deals are bad deals

All Trade Deals Are Bad Deals

Harry Binswanger

For over a year, markets have been whipsawed by alternating hopes and fears regarding trade deals between the U.S. and China, and between a post-Brexit U.K. and the European Union.

The fears are justified; the hopes are not. All inter-governmental dictation of the terms of trade are improper. The terms of trade are matters for negotiation between private parties, not governments.

An actual deal is a voluntary trade between private individuals or private businesses, who decide what to do with their own property. The premise of inter-governmental trade “deals” is that private property is irrelevant, that governments are to decide who is permitted to buy or sell what to whom and at what price.

If your money is yours, not the government’s, if Apple’s products are the property of Apple and not the government, then government officials have no right even to venture an opinion about the terms of private deals and contracts. If Ford wants to outsource part of its production to a factory in China, that’s up to Ford and to the owners of the factory. True, China’s government does not permit real property rights to the factory’s owners. But that’s an immorality on its part, one that is not ameliorated by our government acting with the same dictatorial mentality.

There’s a name for the premise of government dictation of trade. When the government preserves the surface appearance of private ownership but actually takes control of how that property is used and disposed of, the resulting system is called “fascism.”

Under fascism, the owners retain nominal title to their property, the businesses remain nominally private, but the government dictates what individuals and business must do with that property. Prices and the terms of trade are set coercively by the state. And that’s just what trade “deals” seek to do with international trade.

An analogy will expose the fascist nature of all trade “deals.”

Imagine that countries negotiated music deals. Suppose that in the mid-1960s American politicians had decided that the “British invasion” was not good for American music.

“We have enough Beatles and Rolling Stones,” they might have declared. “But we’re willing to make a deal with Her Majesty’s Government to establish a level playing field. We will allow in one British rock album for every Lawrence Welk album that they buy from us.”

Then the Brits try to negotiate a change from Lawrence Welk to the Beach Boys.

In order to get the best possible deal, the U.S. government starts banning the sale of Beatles albums here. “We can play hardball,” the President says. He adds, “We stand ready to prevent our people from listening to as many British rockers as is necessary to achieve musical parity.”

You take it from there.

That analogy evokes a chuckle–because it is too silly to occur. But there’s no difference in principle between obstruction of imported music and obstruction of imported electronics. In both cases, the government is strangling its own citizens for an irrational goal: musical parity or a “favorable” balance of trade.

(The “balance of trade” is an accounting artifact: when our imports exceed exports, it’s solely because of foreign investment here. Imports are always paid for–and in U.S. dollars. Dollars that foreign sellers leave in the U.S., rather than spending on U.S. products, create a “deficit” in the “balance of payments.” This isn’t disputed. But foreign capital invested here is a boon not a threat. The U.S. had a “trade deficit” practically every year of the 19th Century–the period of our fastest economic growth.)

If you want to buy a car made in Michigan, you would be outraged if the governor of your state began negotiating with the governor of Michigan to set the terms of a “deal” to be imposed on you because it’s “in the public interest.” You should be just as outraged when it’s a car made in Germany or Korea.

Free-traders have characterized America’s imposition of tariffs as Uncle Sam shooting himself in the foot. But it’s way worse than that: it’s Uncle Sam shooting American citizens in the foot. When governments “negotiate” to get a “deal,” the people are held hostage; their lives and well-being are the “bargaining chips” in the negotiations. The tariff threats governments make are directed against their own citizens.

It has been claimed that we need trade deals in order to stop the theft of our intellectual property. This is a mistake. If such theft can be shown in a court proceeding, then the individual businesses guilty of it, not the world at large, should be punished for the crime. As a first step the guilty firm should not be allowed to sell their goods in this country. Further legal redress should be pursued . . . against the individual firms that have engaged in the theft.

But today’s approach is the unjust practice of punishing a whole group for the misbehavior of one party. Imagine that Qualcomm were found to be stealing intellectual property from Apple. Would that justify slapping a tax on every American business in order to “play hardball” with Qualcomm? It’s even more outrageous to tax all Americans in order to “play hardball” with Huawei. Punish the offending party, not the population at large.

If governments are not to make “deals,” what should they do to improve foreign trade? Simple: stop interfering with trade. Drop all the controls over trade. Do it unilaterally.

The American government should immediately end all its tariffs, quotas, and other forms of interference with trade. Then we could broadcast to the world: “We are no longer going to rob our own citizens by interfering with their right to trade their property as they see fit. To foreigners, we say: why not demand of your government that it respect your rights?”

The same applies to the U.K. It should exit the European Union without a “trade deal.” The so-called “hard Brexit” is the morally right Brexit. There should be no British politicians tasked with “handling” trade issues. The courts of law are the proper venue for trying individual cases, based on individual evidence and individual rights.

All the uncertainty, paralysis, and escalating “trade wars” would vanish overnight if America and the U.K. dropped their controls and announced: “What our citizens buy from and sell to the citizens of other countries is not something any government may obstruct. The right of free trade is a corollary of the right to private property. No benefit, only mutual destruction, can result from violating those rights.”

Someone wrote me privately to object. He said that when country A puts a tariff on goods from country B, it’s a tax on country B’s businesses. E.g., the Trump tariffs on imports from China are a tax on Chinese businesses. Then he argued that imposing tariffs in the way we have is valid because the message to China is: “If you lower your tariffs, we’ll lower ours.” He saw merit in the claim that in the long term, this will lead to lower tariffs worldwide and bring us closer to free trade.

My answer was:

But our government has no right to initiate force against us in order to (supposedly) induce another government to stop taxing their own citizens! The tariffs that China puts on are not taxes on our businesses: they are taxes on the Chinese who want to buy from our businesses.

It is true that if you beat up potential buyers, that means less in sales for our would-be sellers. But that doesn’t make it a tax on our businesses. The Chinese, no doubt, impose income taxes on their citizens; that reduces their spendable funds, so they buy less from American firms. But the tax is on the Chinese, not on us. We fail to get trade we could have and should have gotten. But the same is true in regard to our taxes and controls: they hurt the Chinese (and the citizens of every nation). But our income tax and our environmental regulations and our antitrust laws are not taxes on the Chinese.

Take it more extreme. Suppose the Chinese murder half their population. Is that to be thought of as a violation of the rights of American businessmen who would have sold to the victims?

And would the answer to that genocide be: “Oh yeah? Well, we’re going to kill half of the Americans–see how your exporters like that!”

Reading over the above, it now occurs to me that arguments like “tariffs will work in the end” are nakedly pragmatist. Once you understand that the government exists to protect rights, not violate them, that ends the discussion about slapping on tariffs. It’s a (further) violation of our property rights, so it’s not permitted. Full stop.

I have said that our government should announce: “We are immediately dropping all tariffs, quotas, and import controls. Americans do not permit their government to rob them; we’re sorry if your government continues to rob you, and you have the absolute right to overthrow that tyranny. The regime has no power to stop a popular rebellion, as the fall of the Soviet empire proved. We hope that you throw out the thugs and join the free world. In the meantime, send us your goods.”

That would be 100 times more powerful than any economic pain inflicted (mutually). Didn’t we learn “The lesson of Vietnam”? That lesson was that the most militarily powerful country in the world will be defeated by one of the most backward and impoverished countries in the world when the stronger country loses its moral self-confidence.

Marx was wrong. Ideology is not determined by economics. The Chinese regime will not be brought down by slowed economic growth. Under Mao, the regime flourished while the people literally starved to death. In the 1930s, the Soviets deliberately starved to death tens of millions of “kulaks.” People will knuckle under to anything, as long as they believe the alternative is evil.

(It is true that if the ideological preconditions are sufficiently established, an economic contraction can serve as a catalyst; but a more effective catalyst would be calls to overthrow the regime, per above. That was the catalyst Reagan supplied by his one good moment: the “evil empire” reference.)