Tuesday, April 28, 2009

Free Trade 12: Trade and World Peace

Last April 02, 2009, I wrote this:

Today, leaders of the world’s largest economies, both rich and developing, will meet in London to "save" the world economy in general, and their respective economies in particular.

The G20 summit is a high profile meeting; there are lots of demands and expectations, lots of lobby interests to be resolved and pleased. Among such groups are the protectionists and anti-free trade interests.

This group reasons out that since the economy is bad and lots of jobs have been lost and are threatened to be lost further, consumers should patronize locally-made products and services. The group further posits that governments should reduce, if not prevent, huge importation of competing goods and services made from other countries. This way, local jobs will be preserved and/or created, and the economy will recover.

There is one huge fault in this kind of reasoning: It does not recognize that people trade with each other voluntarily because they realize there are "net gains" for them. By choosing the best quality product (raw material or final consumer item) at the lowest price possible, a consumer benefits. By having huge number of potential buyers, a producer continuously improves on his product or service to please consumers who want the “best product at the lowest price possible”.

The International Policy Network and the Atlas Global Initiative teamed up to launch the Freedom to Trade Coalition (F2T) and the Free Trade Petition to pressure G20 leaders not to give in to strong protectionist moves in their respective countries and regions.

When the Petition was launched in London yesterday, it has attracted more than 2,000 signatories from many countries around the world. The Petition categorically declares the following, among others:

“Trade’s most valuable product is peace. Trade promotes peace, in part, by uniting different peoples in a common culture of commerce – a daily process of learning others’ languages, social norms, laws, expectations, wants, and talents.

Trade promotes peace by encouraging people to build bonds of mutually beneficial cooperation. Trade unites the economic interests of the peoples of all nations who trade with each other.

A great deal of rigorous empirical research supports perhaps the most tragic example of what happens when the proposition that "trade promotes peace" insight is ignored is World War II.

International trade collapsed by 70% between 1929 and 1932, in no small part because of America’s 1930 Smoot-Hawley tariff and the retaliatory tariffs of other nations. Economist Martin Wolf notes that "this collapse in trade was a huge spur to the search for autarky and Lebensraum, most of all for Germany and Japan."

The most ghastly and deadly wars in human history soon followed.”

A number of leaders of member-institutes of the F2T Coalition – including this writer – believe that for free trade to succeed, it should be done unilaterally. Problems arise when people accept the idea that countries should first restrict trade, and then negotiate for some alleged reciprocal benefits, because this legitimizes the role of the State in trade. Countries and governments do not trade with each other; people do. So governments have no legitimate role in restricting or negotiating trade.

Unilateral free trade means that business and political leaders of an economy simply declare, "We want more choices of goods and services from anywhere. Come bring them here, zero (or near-zero) tariff, zero or near-zero non-tariff barriers, and very little bureaucracy (trade facilitation)." Hong Kong does that. North Korea and Myanmar do not do that.

Meanwhile, the US President, the British Prime Minister, and other G20 leaders are busy convincing each other and the public that the world needs now more deficit spending, more borrowings, and more government debts, to "save" the world economy. Huge debts of the past were not enough; they need even bigger debts and bail-outs.

But some European leaders prefer equally threatening moves like the creation of a new global financial regulation framework or mechanism. One such mechanism is large-scale harassment of so-called "tax havens". The US, EU, Japan, and other rich countries that are on the "more-debts-more-bail-outs" train know perfectly that they are heading to the "more-and-higher-taxes" direction, to pay past and present debts. Hence, economies that offer some "tax relief" to global corporations should be pounced. Everyone should pay the high cost of "saving" the global economy, now and in the future.

At the end of the day, people around the world only need free trade, bigger choices of which products and services they will buy or not buy, of which type of employment arrangement they can accept or reject, and of which technology they will need or ignore. People do not need more deficit spending and more debts by governments. They do not need more financial and economic regulations. They do not need more aid or government-to-government transfer of taxpayers’ money.

People need greater control of their own lives. They need global peace to allow them to pursue their professions, to pursue their business and consumer interests, with the least taxation, regulation and intervention by governments and bureaucrats possible.

Today, writing this in Los Angeles, California, USA

Free Trade and Liberty Forum

Trade is the process or mechanism by which people can sell their extra output of goods and services, use the money from such sale to buy the extra goods and services by other people that they need for their household and work needs. Thus, a rice or chicken farmer can sell their extra rice or chicken to other people, they use the money proceeds of such sale in order to buy fuel or spare parts for their hand tractors or fertilizers or animal feeds, to buy new dress, shoes and school supplies for his children, to build a new or repair and old house, to buy beer and pork barbecue, and so on. This important and common sense function of trade and voluntary exchange, is the main reason why trade should be left unrestricted, why trade should be as free as possible. 

Unfortunately this thinking is not shared by certain sectors of our societies. There are many alibis against free trade, foremost of which is that it steals local jobs. By buying goods made abroad and imported into the country, local manufacturers are deprived of additional revenues, some of them will close shop, resulting to job lay-offs and hence, higher unemployment, higher poverty.

Fighting trade protectionism is among the panel discussions tackled in the recently concluded “Atlas Liberty Forum” held at Hyatt Regency Century Plaza, Los Angeles, California, April 24 to 25, 2009. It was sponsored by the Atlas Economic Research Foundation. Atlas gave me a travel scholarship and hotel accommodation, that is why I was able to attend this event, and I was the only Filipino among nearly 300 participants from more than 30 countries around the world. 

The speakers from this panel were Alec van Gelder from International Policy Network (IPN) in London, Dan Grisworld from Cato Institute in Washington DC, and Seyitbek Uzmanov from Central Asia Free Market Institute (CAFMI) in Kyrgyztan. The panel moderator was Tom Palmer, the new Atlas VP for the Atlas Global Initiative.

Mr. van Gelder talked about the global campaign for free trade initiated by Atlas and IPN, the Freedom to Trade coalition that has attracted the participation of about 70 independent institutes and think tanks from nearly 50 countries, among others. Mr. Grisworld talked about the various tariff and non-tariff barriers that the American protectionists have put up against certain imported commodities, to the disadvantage of American consumers who have to pay higher for otherwise cheaper goods made abroad. And Mr. Uzmanov talked about the free trade coalition they are building in Kyrgyztan with a single mission: to make their country the “Dubai of central Asia” within the next 2 to 3 years. 

This goal by CAFMI is indeed laudable and ambitious, despite the fact that it is a very young think tank and its two top leaders are young too, only in their mid-20s. I asked them why they chose Dubai as their model for free trade when Hong Kong is more famous in having a unilateral free trade policy, they replied that many people in their country do not know Hong Kong much while Dubai is more known to them. Hence, the “Dubai inspiration” for a unilateral free trade project.

There were many other interesting panels in the Atlas Liberty Forum, like “The financial crisis and the attack on sound money” and “Fund raising” for free market think tanks. 

Trade protectionism is one aspect of dictatorship. The protectionists and their implementers in government dictate to the consumers what goods and services they can or cannot buy from abroad, if allowed to import, by how much quantity, from where and at what price. People just do not realize the dictatorship aspect of trade protectionism.

There is a new shade of protectionism that is recently shaping up: green or eco-protectionism. This type of protectionists argue that while rich countries keep their environment clean and refrain from using dirty and highly polluting technologies, the producers from poorer countries do not. Thus, the goods are produced cheaply there because they are using old and dirty technologies, they do not strictly control air quality in manufacturing plants, and such production processes emit plenty of carbon dioxide into the atmosphere, which contributes to greenhouse gases (GHGs), which contributes to global warming and climate change. 

The solution therefore, is to impose a “carbon tax” on imported manufactured goods from poorer countries that do not strictly limit their carbon emission. This tax is meant to “compensate” for the use of dirty manufacturing technologies that “contribute to global warming”, resulting in lower amount of importation (since the imported goods have become more expensive), lower amount of carbon emission in the world.

This reasoning is faulty on two counts. One, it is wrong to restrict international trade because it reduces or kills the right of choice of the local consumers. And two, it is wrong to blame carbon dioxide as the “cause” of global warming. See my article last week on this, “Cooling reality vs Warming politics.”

It is important that Atlas continues holding its annual Liberty Forum because the forum helps not only to discuss and clarify certain issues that affect the world, issues that affect the individual liberty of people around the world. The forum also allows liberty fighters to network with each other, to learn from each other.

See also:
Free Trade 6: Counterfeit Drugs Worldwide, December 21, 2007
Free Trade 7: Class War, Eco-protectionism and Climate, April 02, 2008
Free Trade 8: Global RIce Price, May 13, 2008
Free trade 9: Parallel Importation of Medicines, May 22, 2008

Free Trade 10: More on Unilateral Trade Liberalization, July 15, 2008
Free Trade 11: Global Petition, Keynes, March 19, 2009

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