The ruling by the WTO against US cotton subsidies may be sweet, but it is not a victory for free trade. In the real world, there is no such thing as a “level playing field” in which producers all face the same costs of production; no seller and no buyer anywhere enjoys a right to compete only against suppliers and buyers who sell and buy at an approved price. Free trade means only this: unemcumbered exchange across borders. [MORE]
Source link: http://archive.mises.org/1919/cotton-candy/
Cotton Candy
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But don’t subsidies distort the price on the markets and prevent the more efficients productors of achieve their optimum productive arrangement?
A better example of a free trade restriction would be the WTO’s ruling a few weeks ago against U.S. laws that prohibit Americans from gambling on Internet sites based in foreign countries. Antigua and Barbuda, a major supplier of online gambling, filed a WTO grievance over the U.S. ban. In case filings, the U.S. Trade Representative (a Bush political appointee) argued that gambling was simply too dangerous to the public health to be left “unregulated” on the Internet. Antigua responsed by pointing out USTR’s hypocrisy, given the hundreds of legal, government-supported forms of gambling in the U.S., from lotteries to full casinos. The USTR’s basic response was that government-run gambling is fine, but private gambling endangers the public health by encouraging children and potential addicts to gamble.
Yes, Marcelo, subsidies, tariffs, and regulations always ‘distort’ the market (Unlike, Lew I do not believe this is always a bad thing, but these impositions necessarily result in either higher prices, or higher taxes.); however, Lew’s point is that the ones who impose distortions on the market suffer the most. Our participation in a World Trade Organization demonstrates our government’s lack of confidence in true free trade.
A government that is truly committed to free trade would let other governments do stupidities such as trash their environments, subsidize their ‘strategic’ industries, and debase their currencies, but not engage in those stupidities ourselves. Instead we have a government that engages in all of these activities and then points the fingers at other countries.
The WTO is, however, politically useful for free traders because they can say, “Look, we would like to help you, but our hands our tied by the WTO.” Obviously, it would be better for the government leader to engage in an honest and thoughtful discussion of the advantages of free trade, but it is much easier to pander to various constituencies and tell them you will preserve their jobs (at the expense of everyone else, of course).
Any thoughtful political constituents being told they will get their favorite subsidy must wonder whether such an unprincipled politician is telling everyone else the same thing. If they believe this nonsense, they will be condemned to live in a society with a large, intrusive bureaucracy, high prices, and inefficient industries.
My only disagreement is that the harm is not confined to the country doing the subsidizing.
This might be more general than “trade”, but an overabundance of credit, causing bubbles which burst is a bad thing. The (currently profitable) malinvestments occuring in China are turning what would have been profitable investments in the US into money-losing ventures.
With things like manufacturing and wine, you can’t build a plant or a producing vineyard overnight. Or the 1997 Asian crisis – too much hot money flooded in, then there was a crash as it headed out. How do you calculate such things? Build a post-crash plant and assume things will remain sane, or assume that before you are done (assuming you can complete the plant while the prices are wildly swinging), another cheap-credit malinvestment plant somewhere else will undercut you for 2 more years?
I’ve pointed out before that if Mexico imposed tarrifs and subsidies just after NAFTA, we would have taken them to task. Instead, they devalued the peso which had the same economic effect.
With the current fiat-only system, there is more noise than signal in the exchange rates – it is a wonder that we do better than socialists trying to do calculation. Or maybe we don’t.
Just be happy and hope there will be an unending supply of other countries willing to create bubbles and malinvestments so we can get things below cost? What happens when the whole thing collapses?
TZ,
If there’s a crash, the post crash market for whatever product was being overproduced will be smaller, by definition. Why be concerned?
I don’t think we should wait until all governments become libertarian to support free trade. Oh, also, I don’t think we should wait until the US government and the states are libertarian before supporting free immigration.
“I don’t think we should wait until the US government and the states are libertarian before supporting free immigration.”
It’s one thing for intelligent, productive, and honest people to freely immigrate. But are you sure you want unproductive, unintelligent and ineducable people who are likely to go on the welfare rolls freely entering the country? You are only going to end up paying for their support. Why would you want to do that?
With completely free immigration, we could have scores of millions of uneducated third world people arriving in the US every year. The governments where they now live would probably pay for their transportation, subsidized by US foreign aid. Loony multiculturalists would hold fund raising events (Walk for Immigration!) to finance massive third world immigration to the land of plenty if the gates were opened. What person starving in a mud hut wouldn’t do whatever it took to come to the US if he could and then go on welfare?
Some fruitcakes think that all of the immigrants we now have are vital to saving the social security system. They think these folks will be productive enough to support elderly Americans in the manner to which we have become accustomed, in our old age. But this is foolishness. We live in a highly technological society with highly specialized professions. The division of labor has been extended much further here than anywhere else in the world. Most immigrants are wholly unprepared to function in our society, and can only become net consumers of capital, rather than producers of same.
Some libertarian commentators have criticized the ruling, arguing that the WTO is just another layer of government destined to mess up the operation of free markets and lamenting that the developing nations are calling for fairness in international trade. Although the details of the ruling are not yet available, making it difficult to know the specific basis for the ruling, I believe that these critics should put aside their objections, at least in these particular circumstances. The WTO panel is not using some Marxist notion of “fairness” to direct global markets towards goals of “the common good.” The organization operates from the premise that free markets are a good thing and that government interventions into the economy must be demonstrated as necessary (or exempt from review, as subsidies and textiles were for the last decade) in order to be allowed.
There is such a thing as a “level playing field”–the free market. The panel is not ruling to help the developing nations because it has pity upon them; it is upholding neoliberal principles and forcing Washington to play its own game.
The global trading system cannot last long if neo-mercantilist developed nations insist upon distorting markets to their favor at the expense of developing nations. If a free trade organization forces the US government to live up to its free market rhetoric, we ought to cheer for it.
It is a given that the US should get rid of all subsidies immediately. They distort production and tax US citizens. But free trade need not wait for that to happen, nor be contingent on domestically free markets. We can’t wait for a perfect world to have trade. The WTO ruling implicitly holds the world trading system hostage to a domestic policy matter, a practice which could ultimately prove dangerous to the world economy.
It is a mistake to threaten the third in order to achieve the first.
I would argue that we are in between the second and third now. Things can only improve. The WTO doesn’t have a lot of power to compel the US government to rescind its subsidies, but at least the ruling casts public attention upon the US hypocrisy. It is unlikely that a backlash to this subsidy ruling will decrease the freedom of trade. As I argue in my post on the topic,
There’s a problem of enforcement, however. The WTO’s only way to keep its members in line is to allow other nations to punish the guilty member with tariffs. That is, the organization devoted to global free trade okays trade wars when things aren’t working. An ugly system, indeed. The United States is most likely to fear trade sanctions when the entity putting them into place is the EU, the world’s largest trading bloc. The WTO giving the go-ahead to Brazil to be protectionist is unlikely to scare the US Congress into line. As such, starving citizens in developing nations will still have to hope for some good will from the leaders of developed nations if agricultural subsidies are to be abolished.
How does the WTO’s ruling hold the global trading system hostage?
THanks Lew, for this great article. I was just about to write a pape on free trade and this has definitely helped me.
Cheers
Dave
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