Posted by: changholt | January 8, 2013

Free Trade is Good

Free trade is best for America — regardless of what other countries do

With current world wide economic crisis free trade is again under attack, even though having provided the US economic prosperity for decades. Some groups in the United States blame free trade for the loss of manufacturing jobs, while others blame it for exposing some U.S. producers to foreign competition.

According to the Heritage Foundation, free trade, however, is good for America, and for a very simple reason: It allows American workers to specialize in goods and services that they produce more efficiently than the rest of the world and then to exchange them for goods and services that other countries produce at higher quality and lower cost.

Arthur Foulkes notes, that not long after imposing a 35 percent tax on tires made in China, the U.S. government is imposing a 10 to 16 percent tariff on Chinese steel tubing.

Several steel companies and a labor union approached the government seeking the tariffs. In response, the Commerce Department ruled that the imported steel tubing was subsidized by the Chinese government and the U.S. International Trade Commission voted 6-0 that the imports were “injuring the U.S. [steel] industry,” according to thehill.com.

I don’t know whether China is truly subsidizing its steel tubing exports or to what level. However, even if everything the Commerce Department reports is accurate, are tariffs really a good idea?

Those favoring the new steel tariff argue that the Chinese government is subsidizing the tubing. As a result, Chinese companies can sell their tubing at a lower price than American competitors. The result is “damage” to the American steel companies in the form of lost sales. At the same time, Chinese steel producers benefit by receiving a subsidy.

It may seem like tariffs are a good way to respond to Chinese subsidies. But it’s worthwhile to look a little closer at this situation.

As things currently stand, Chinese taxpayers are made worse off than they would otherwise be because they have to pay for the subsidy to Chinese steel makers. And while American steel producers, and their employees are also worse off, American consumers and businesses that buy steel tubing are winners because of the lower cost steel tubing the subsidy makes available. In effect, Chinese taxpayers are being forced to provide lower-cost steel for American consumers and extra sales to Chinese steel producers. (for more on this article please click here)

The Heritage Foundation points out, free trade is an essential pillar of U.S. economic power and prosperity. It encourages labor force specialization and the exchange of goods and services that other countries do better and at lower cost. Specialization leads to competition and innovation, providing new technologies that allow Americans to produce more goods and services, cure more diseases, pollute less, get better education, and choose from a wider range of investment options. As the economy grows, people enjoy higher standards of living and gain a greater appreciation of the benefits of living in a peaceful society.

Competition, innovation, and new technologies also bring about changes that challenge some sectors to adapt themselves to those new trends and reap their benefits. Changes currently taking place in the U.S. manufacturing sector illustrate the process by which a growing society changes from a more industry-based to a more knowledge-based society. Those businesses and entrepreneurs who seize the opportunity to profit from this change will survive and, in surviving, will provide more and more Americans with the opportunity to increase their standard of living.


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