Deja Vu

Free Trade

“The Cost of a Presidential Cave-In,” by George F. Will, The Washington Post, Sept. 23, 2009.

While in Pittsburgh, a sense of seemliness should prevent President Obama from again exhorting the Group of 20, as he did April 2 in London, to be strong in resisting domestic pressures for protectionism. This month, invertebrate as he invariably is when organized labor barks, he imposed a 35 percent tariff on imports of tires that China makes for the low-price end of the market. This antic nonsense matters not only because of trade disruptions it may cause but also because it is evidence of his willowy weakness under pressure from his political patrons.

In 2000, as a price of China's admission to the World Trade Organization, Congress enacted a provision for "relief from market disruption" to American industries from surges of Chinese imports. Actually, American consumers cause "disruption" in American markets when their preferences change in response to progress -- better products and bargains. Never mind. Congress said disruption exists whenever imports of a product "like or directly competitive with" a U.S. product increase "rapidly" and threaten "significant" injury to a U.S. industry. Examples of disruption include the volume of imports of a particular product, the effect of imports on the prices of competing U.S. goods and the effect on the U.S. industry.

The Wealth of Nations, by Adam Smith, 1776.

Though the encouragement of exportation, and the discouragement of importation, are the two great engines by which the mercantile system proposes to enrich every country, yet with regard to some particular commodities, it seems to follow an opposite plan: to discourage exportation and to encourage importation. Its ultimate object, however, it pretends, is always the same, to enrich the country by an advantageous balance of trade. It discourages the exportation of the materials of manufacture, and of the instruments of trade, in order to give our own workmen an advantage, and to enable them to undersell those of other nations in all foreign markets; and by restraining, in this manner, the exportation of a few commodities, of no great price, it proposes to occasion a much greater and more valuable exportation of others. It encourages the importation of the materials of manufacture, in order that our own people may be enabled to work them up more cheaply, and thereby prevent a greater and more valuable importation of the manufactured commodities....

Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer. The maxim is so perfectly self-evident, that it would be absurd to attempt to prove it. But in the mercantile system, the interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider production, and not consumption, as the ultimate end and object of all industry and commerce....

In the system of laws which has been established for the management of our American and West Indian colonies the interest of the home-consumer has been sacrificed to that of the producer with a more extravagant profusion than in all our other commercial regulations. A great empire has been established for the sole purpose of raising up a nation of customers who should be obliged to buy from the shops of our different producers, all the goods with which these could supply them. For the sake of that little enhancement of price which this monopoly might afford our producers, the home-consumers have been burdened with the whole expense of maintaining and defending that empire. For this purpose, and for this purpose only, in the two last wars, more than two hundred millions have been spent, and a new debt of more than a hundred and seventy millions has been contracted over and above all that had been expended for the same purpose in former wars. The interest of this debt alone is not only greater than the whole extraordinary profit, which, it ever could be pretended, was made by the monopoly of the colony trade, but than the whole value of that trade, or than the whole value of the goods, which at an average have been annually exported to the colonies. It cannot be very difficult to determine who have been the contrivers of this whole mercantile system; not the consumers, we may believe, whose interest has been entirely neglected; but the producers, whose interest has been so carefully attended to; and among this latter class our merchants and manufacturers have been by far the principal architects.

The importation of gold and silver is not the principal much less the sole benefit which a nation derives from its foreign trade. Between whatever places foreign trade is carried on, they all of them derive two distinct benefits from it. It carries out that surplus part of the produce of their land and labor for which there is no demand among them, and brings back in return for it something else for which there is a demand. It gives a value to their superfluities by exchanging them for something else, which may satisfy a part of their wants, and increase their enjoyments. By means of it, the narrowness of the home market does not hinder the division of labor in any particular branch of art or manufacture from being carried to the highest perfection. By opening a more extensive market for whatever part of the produce of their labor may exceed the home consumption, it encourages them to improve its productive powers and to augment its annual produce to the utmost, and thereby to increase the real revenue and wealth of the society.

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