Conservatives, Free Trade, and the WTO

Writing for the Heritage Foundation, a conservative think tank, Anthony B. Kim says that “it’s time to get serious about reforming [the] World Trade Organization.” Kim “researches international economic issues at The Heritage Foundation, with a strong focus on economic freedom.” He maintains that “with a new director at the helm,” the “time is ripe for World Trade Organization reform.”

The World Trade Organization (WTO) “is the only global international organization dealing with the rules of trade between nations.” The WTO

  • operates a global system of trade rules,
  • acts as a forum for negotiating trade agreements,
  • settles trade disputes between its members, and supports the needs of developing countries.

The WTO “has over 160 members representing 98 per cent of world trade.” Its primary purpose is “to open trade for the benefit of all.” Its goal is “to ensure that trade flows as smoothly, predictably and freely as possible.” At its heart are “the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments.” To join the WTO, “a government has to bring its economic and trade policies in line with WTO rules and negotiate its terms of entry with the WTO membership.” The WTO employs approximately 650 staff members, with an annual budget of almost 200 million Swiss francs (about $210 million), most of which goes toward staff salaries and benefits.

The new, and seventh, director-general mentioned by Kim is Dr. Ngozi Okonjo-Iweala. She is the first woman and the first African to serve as the head of the WTO. She took office on March 1, and is said to be “a global finance expert, an economist and international development professional with over 30 years of experience working in Asia, Africa, Europe, Latin America and North America.” According to Kim:

Reforming and upgrading the WTO is a priority issue for the U.S. and its trading partners, particularly the European Union, with which America has the world’s largest trade and investment relationship.

The WTO has also proven to be a useful tool for the United States and the EU in promoting fair and mutually beneficial trade among the organization’s members. American and European businesses and consumers have benefitted measurably from voluntary participation in its negotiations and mediation exercises.

The WTO has contributed to the strength and stability of the global economy, helping to boost trade growth, resolve numerous trade disputes, and support the integration of more countries into the trading system.

To reinforce the benefits of rules-based free trade, the U.S. and the EU must work together to resist protectionist measures stronger than ever. It’s clear that the U.S. has significant causes for complaint about EU protectionism, just as the EU does about U.S. protectionism. The wrong way for a country to fight protectionism is to engage in more protectionism of its own.

Yet Kim believes that it is time “for our European allies to stand with the United States in advancing a robust transatlantic approach toward China — one that holds Beijing to account for its anti-market, illiberal trade practices that have been going on over the past two decades.” Although Kim acknowledges that the WTO “is not a global governing body that directs flows of goods and services around the world” and “has no independent power to enforce its decisions,” he nevertheless maintains that “China has used its economic power to bully, bribe, corrupt, and steal its way up the global economic supply chain, with only limited resistance from the WTO.” Kim is encouraged that U.S. Trade Representative Katherine Tai — a Connecticut native of Chinese descent — has said that “she plans to form an alliance with trading partners to push China on unfair trade practices.” She likewise believes that “the WTO does need reform.”

Reform, reform, reform — that is the perennial cry of conservatives when it comes to government agencies and international organizations that have no place in a free society. Does the WTO need to be reformed? Is the WTO necessary for free trade? Are WTO rules essential for “fair trade” to take place? Does the WTO have to manage trade for it to be beneficial? Does the WTO need to get tough with China regarding its trade practices? Does the WTO need to spend $210 million a year to facilitate trade?

Economist Donald J. Boudreaux, a professor at George Mason University, recently penned an excellent series of articles (1, 2, 3, 4) on “Twelve Principles of International Trade”:

  1. Countries do not trade with each other. People trade with each other.
  2. Imports do not destroy jobs on net in the domestic economy.
  3. Trade deficits are generally evidence of relative economic health.
  4. The benefits of trade are found in its imports. Exports are trade’s costs.
  5. Money plays the same role in international transactions that it plays in domestic transactions.
  6. The greater the amount of imports we receive for a given amount of exports, the better off we are — and so foreigners who arrange for our imports to rise relative to our exports do not treat us “unfairly.”
  7. The people of the home country benefit from their government following a policy of free trade regardless of the policies pursued by foreign governments.
  8. Trade is a technique for individuals to produce, for their own consumption, goods and services at the lowest possible cost.
  9. A policy of free trade ensures that people in the home country receive in return for their work effort the greatest possible amount of satisfaction.
  10. Because wages reflect worker productivity, workers and firms in low-wage countries do not have an “unfair” advantage over workers in high-wage countries.
  11. Economically, there’s nothing unique about trade that takes place across political borders.
  12. The national-defense exception to the case for free trade must be handled with care.

It is no accident that a country’s joining the WTO is not one of the principles on Boudreaux’s list. Free trade — the freedom of individuals and businesses to buy and sell products and services from and to any other individual and business in any other country without government regulations, sanctions, restrictions, subsidies, rules, barriers, tariffs, quotas, or anti-dumping laws — does not need trade ministers, trade representatives, trade negotiators, trade agencies, trade agreements, trade treaties, or trade organizations such as the WTO. It just needs a willing buyer and a willing seller, each of whom benefits from engaging in commerce across country borders. Conservatives confound managed trade with free trade just as liberals confound crony capitalism with free-market capitalism. But managed trade is not only not free trade, it is Soviet-style central planning. Government bureaucrats must determine which industries need protection, which items should be subject to tariffs, what the correct tariff should be, and how long the tariff should last. It is no wonder that conservative free traders are so easily led astray. Even Adam Smith (1723–1790), who made the classic case for free trade in The Wealth of Nations (1776), was not a free-trade purist:

There seem, however, to be two cases in which it will generally be advantageous to lay some burden upon foreign for the encouragement of domestic industry.

The first is, when some particular sort of industry is necessary for the defence of the country. The defence of Great Britain, for example, depends very much upon the number of its sailors and shipping. The act of navigation, therefore, very properly endeavours to give the sailors and shipping of Great Britain the monopoly of the trade of their own country in some cases by absolute prohibitions and in others by heavy burdens upon the shipping of foreign countries.

The second case, in which it will generally be advantageous to lay some burden upon foreign for the encouragement of domestic industry is, when some tax is imposed at home upon the produce of the latter. In this case, it seems reasonable that an equal tax should be imposed upon the like produce of the former. This would not give the monopoly of the home market to domestic industry, nor turn towards a particular employment a greater share of the stock and labour of the country than what would naturally go to it. It would only hinder any part of what would naturally go to it from being turned away by the tax into a less natural direction, and would leave the competition between foreign and domestic industry, after the tax, as nearly as possible upon the same footing as before it.

But free trade is not beholden to Adam Smith or any school of economics. And it is certainly not made more free when managed by governments or organizations such as the WTO.

The post Conservatives, Free Trade, and the WTO appeared first on The Future of Freedom Foundation.

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