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An Examination of International Trade

Written by Joseph Turner


10/19/2016
Free trade versus protectionism is one of the most controversial
debates in the field of US foreign policy. Free trade is the concept that
international commerce should be left unregulated by the governments of
the involved countries. Protectionism, on the other hand, is the ideological
position that governments should employ tariffs, quotas, and other
regulations to protect economic interests at the national level. The deeprooted economic impacts and assumptions of free trade are crucial to fully
understanding the issue of international commerce.
The first and most prominent of the advantages offered by free trade is
that, if implemented, consumers would be presented with a wider, cheaper
range of goods and services. The worlds supply of products is obviously
greater than that of an individual nation. Because of this, competition is
stronger in an international market, and thus foreign products will sometimes
be cheaper or of higher quality in order to compete with the domestic
industry. The result is an increase in cheaper and/or higher quality products
for consumers, albeit at the potential cost of domestic businesses that cant
compete in the global market.
If tariffs (a government tax on imported goods) were indeed issued on
foreign merchandise, international businesses would raise the market price
of their goods in order to continue making a profit. If the tariffs raise the
market price too severely, foreign firms will no longer be able to compete
with domestic firms, therefore withdrawing sales from that particular nation.
While domestic businesses will have a larger share of the market, the
consumers (the citizens purchasing the goods offered by firms) would be left
with a reduced, more expensive supply of products. Tariffs promote domestic
business and increase government revenue, but at the cost of the consumer:
consumers now must purchase goods at a more expensive rate, and as a
result they have less wealth to invest in other potentially more important
areas of the economy. This is why many supporters of free trade argue that
tariffs dont always promote domestic business: in some ways, they inhibit
the consumers ability to invest in the economy.
Tariffs are most precisely thought of as a sales tax on foreign goods.
Many people see tariffs as taking money from the foreign competitors, but
on a deeper level, tariffs are actually paid by the consumers, the citizens of
the domestic country, rather than foreign rivals. The consumers must pay a
higher percent of the actual market value of foreign material, and the excess
money is issued to the government. In this respect, it is identical to a tax.

Consequently, some may argue that tariffs provide needed revenue for the
government. But when it comes down to it, either the government obtains
extra wealth, or the consumers obtain extra wealth by saving money through
purchasing products in an international market. The ultimate question is this:
who is more capable of competently investing and managing money: the
citizenry, or the government? A case can be made that not only do the
citizens have a right against tariff taxation, but they would be more effective
in the management of funds and the stimulation of the economy. Supporters
of Free Trade are not necessarily globalist idealists- they are supporters of
individual liberties.
One example demonstrating the disadvantages of tariffs is the United
States current 522% tariff on specific types of Chinese steel. China produces
half of the worlds steel. They also produce it at half the cost of their foreign
competitors, including the US. Understandably, the US steel industry began
falling under competitive pressure from Chinese steel manufacturers, and in
addition with other concerns, the US government made the decision last year
to increase Chinese steel tariffs to up to 522% of their claimed market price.
While the US steel industry has increased by about 2.5% over the past two
years, the price per ton of cold-rolled steel increased by 60%, from 385$ to
615$. An artificial 60% price increase in a much-needed product is manifestly
a bad idea. Steel-consuming manufacturers and construction industries
employ about 12.8 million people. In 2002, when a mere 30% steel tariff was
implemented, these industries lost up to 200,000 jobs. Though the concrete
numbers and impacts are yet to be conclusively collected, a 522% tariff will
certainly devastate US steel-consuming industries.
However, free trade does come with its own costs: Almost universally,
first-world nations with free trade agreements will lose jobs in two primary
ways. Firstly, domestic corporations will frequently be outperformed by
foreign firms. Foreign countries, especially nations at a lower socio-economic
status, are not as regulated by their respective governments in areas such as
the environment or workers rights. As a result, they will work more cheaply
and efficiently compared to first-world nations such as the United States.
These lopsided regulations between nations can easily result in a depression
in various domestic industries, although theoretically this will be
accompanied with a surge in other areas of the economy. Furthermore, the
loss of basic manufacturing industries isnt necessarily a bad thing, if it
means an increase in investment in other more important areas, such as the
technology or medical areas.
The second, potentially more harmful way in which nations may lose
jobs is due in part to the first reason. Domestic firms may leave their own
country and move their facilities to a nation with lower economic regulations
and cheaper labor. The North American Free Trade Agreement (NAFTA) is
famous for its unprecedented job loss. In the 20+ years since its ratification,

it is estimated that the United States has lost approximately 1 million jobs
due to firms moving to Mexico. Companies such as General Motors, Volvo,
Mercedes, Volkswagen, Ford, Nissan, Cat Tractors, Aernova (crucial supplier
to Boeing and Airbus), Dell Computers, Hewlett Packard, IBM, 3M, Coca-Cola,
and even Nabisco have moved a huge portion of production to Mexico. Here
they find cheap land, few restrictions, and laborers willing to work for wages
lower than $3 per hour. These statistics have prompted the nationalist
rhetoric that is so eagerly uttered by politicians such as Donald Trump. But in
some ways, the Mexico situation is an anomaly. Mexicos propinquity to the
US border and the ease with which companies obtain cheap labor are hard to
find anywhere else in the global market, and few U.S. businesses have
relocated to other foreign nations.
Protectionism has further benefits other than just protecting domestic
business from outside competition and offering the government another
facet to obtain money. Protectionism can, in certain situations, be seen as a
protector of fair, free markets as opposed to an instigator of artificial
influence on economic competition. Certain countries- China in particularseem to evince no respect toward traditional thoughts on fair capitalism.
Chinese firms are notorious for dumping- a practice in which companies
temporarily lower their market price in an attempt to drive foreign
competition out of business and obtain a monopoly. Market fixing and the
establishment of monopolies is absolutely contrary to healthy capitalism- but
Chinese manufacturers rarely care. In fact, the Chinese government
purposely subsidizes companies with the goal of putting American
companies out of business. This is practice is entirely prohibited by the World
Trade Organization- of which both China and the US are members- but
ultimately, the only thing that can be done is to impose tariffs on Chinese
industries believed to be dumping. The practice of putting tariffs on goods
that have a temporary, artificially-low market price is actually promoting
truly fair trade. This is the overall motive behind our ratcheting up tariffs on
government-subsidized Chinese steel to over 500%. However, the ripple
effect on US steel consumers is likely to be massively destructive.
Protectionism is the belief that the economic stability of national
industries is more important than retaining free, international markets.
Protectionists believe that government coercion will secure the economic
prosperity for an individual nation. Free trade is a continuation of the
philosophical viewpoint of Laissez-Faire capitalism. It is the belief that
consumers and citizens have a right to sell and purchase products in a fair
market in accordance with their own judgement. Between these two
philosophical positions lies a messy reality. Is Chinas subsidizing of their
steel industries in order to artificially lower prices egregious enough to
impose tariffs, when those same tariffs may significantly harm US industries
reliant upon affordable steel? If we reduce or eliminate tariffs with China,
allowing US steel manufacturers to go out of business, will China simply turn

around and stop subsidizing its steel industry, putting US manufacturers in


the same bind, but this time at the expense of the entire US steel industry?
These are complicated questions with no clear answers. Its easy to say that
the United States needs a common-sense approach combining both views.
But what does common sense even mean in this ever changing complicated
market place of nations with different histories, different value systems,
different types of governments? These are important decisions for the future
policy-makers of the United States of America.