Why is trade not free?

First Published: 2019-06-27

by Jaana Woiceshyn

In a recent National Post column, Robert Fulford rightfully lamented the fact that after a quarter century since the United States-Canada Free Trade Agreement was ratified, the trade between the two countries is anything but free.

According to Fulford, only government procurement, a few other processes, and financial services were made more convenient with the so called Free Trade Agreement. Everything else remained as unfree as before.

The usual culprits for such a sorry state are typically considered to be higher costs (due to higher wages, longer transportation distances, interprovincial tariffs and other taxes, etc.) and lower productivity in Canada. But after discovering that Halls cough drops—made in Canada—cost almost twice as much in Canada ($2.87) than in the U.S. ($1.47), Fulford dismissed all the typical explanations as insufficient and pointed his finger at “interest groups, lobbyists, politicians and bureaucrats” who like the “unfair” trade policy and maintain it decade after decade, while the rest of us are helpless to do anything about it.

It is true that interest groups and lobbyists, such as businesses wanting government protection against foreign competition or trade unionists wanting government protection of jobs, influence the perpetuation of unfree trade. And politicians and bureaucrats who want to maintain their positions also help continue the status quo of protectionism.

However, these groups are not the fundamental cause of unfree trade. Nor are the rest of us as helpless when it comes to influencing freedom to trade as Robert Fulford suggests.

The opposition to free trade stems from the mistaken idea that free trade is contrary to the self-interest of the citizens of a country (or a state or a province). In other words, the opponents of free trade fail to grasp that the principle of freedom, which includes the freedom of trade, is essential to a person’s self-interest.

As an example, the Founding Fathers of America were opposed to taxation but favored tariffs (another form of tax). They failed to see that tariffs contradict individual rights they otherwise promoted.  This logical contradiction has perpetuated itself, not only in America, but in most countries in the world. Such illogical thinking fails to integrate self-interest and freedom.

One the most significant modern-day example demonstrating the harmful effects of protectionism on self-interest is the softwood lumber dispute between the United States and Canada. The Canadian government subsidizes and regulates the country’s softwood lumber industry, and the American government counters by imposing a tariff on Canadian softwood lumber imports because of the unfair advantage of the subsidized Canadian producers. If the Canadian and American governments stopped interfering with the softwood lumber industry and adhered to the principle of free trade (allowing the market to determine prices), the producers in both countries would have to increase their efficiency and productivity in order to compete.

If free trade prevailed, production of softwood lumber—and of all other goods—would take place where it could be done most efficiently, at the lowest cost. This would mean that companies would specialize in providing goods and services where they have a comparative advantage, regardless in which country they are located. It would mean intense competition, innovation, and maximum wealth creation—and translate into economic growth, job opportunities, lower prices, and better quality of products and services. In other words, free trade would serve the interests of everyone: producers, employees, and consumers.

The idea of some kind of collective or national interest is mistaken. Having products manufactured in the United States or in Canada is not inherently in the interest of Americans or Canadians. Having products manufactured wherever it can be done most efficiently—provided the markets are free—is.

We are helpless against anti-free trade activists, lobbyists, politicians, and bureaucrats only when we fall for their argument that protectionism is in our interest. If we passively accept the idea that our freedom, including freedom to trade, should be limited and if we willingly pay prices twice as high as free market prices, we can only blame ourselves.

Instead, we should think to grasp the connection between freedom and self-interest, and promote the principle of free trade as essential to everyone’s self-interest whenever and wherever we can.

Originally posted 28 June 2014 (and still relevant today …)

Jaana Woiceshyn teaches business ethics and competitive strategy at the Haskayne School of Business, University of Calgary, Canada. She has lectured and conducted seminars on business ethics to undergraduate, MBA and Executive MBA students, and to various corporate audiences for over 20 years both in Canada and abroad. Before earning her Ph.D. from the Wharton School of Business, University of Pennsylvania, she helped turn around a small business in Finland and worked for a consulting firm in Canada. Jaana’s research on technological change and innovation, value creation by business, executive decision-making, and business ethics has been published in various academic and professional journals and books. “How to Be Profitable and Moral” is her first solo-authored book.

Visit Dr. Woiceshyn’s archive here…

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