The Fair Trade Fraud at 15

The front page of the Washington Post this morning shows a tearful photo of a Pearl Harbor veteran and others at ceremonies commemorating the 65th anniversary of the ‘day of infamy.’

That photo reminded me that, 15 years ago, I was being derided as a Japanese agent.  (Yes, I did have a history before being labeled an Islamo-fascist sympathizer and all-around anti-Bush hooligan).  The accusations were spurred by the publication of The Fair Trade Fraud, a book that exposed the deceit and absurdity of U.S. “fair trade” laws.

After the New York Times ran an op-ed spinoff from the book, I was on a televisision show in Boston and the host introduced me by declaiming: “Our next guest says that we have a trade deficit because AMERICAN WORKERS ARE LAZY!” I was perplexed, as the op-ed had not mentioned this particular L-word.  But the audience took the hint and  gave me a warm welcome – or, more accurately, made it warm for me.

Unfortunately, a whole new generation of gullible folks have come along to fall for “fair trade” chicanery.

And I remain confounded why any sober citizen would give politicians and bureaucrats the arbitrary power to define fairness.

Some of the review comments on the book are here. (This was compiled in the early 1990s, before Tom DeLay was indicted and before George Will revealed that everyone is obliged to kowtow to the President of the United States).

And here is the book’s first chapter:

 JAMES BOVARD  – FAIR TRADE FRAUD   (St. Martin’s Press, 1991)

 INTRODUCTION

    Americans’ freedom and prosperity are being sacrificed on an altar of fair  trade.  Protectionists have wrapped themselves in a cloak of  fairness,  and each year they discover new moral pretexts to  further restrict how American citizens may spend their paychecks. Fair  trade is a moral delusion that could be leading to an economic  catastrophe.    
      Congressmen are calling for an “economic war” with our  trading partners.  Starkly  protectionist legislation has been passed in recent years by both  the House and Senate, only to be stopped by presidential  vetoes. American corporations are now running advertisements that seek to  inflame hostility to foreign companies.  “Fair trade” is widely  perceived as a panacea for the U.S.’s international economic problems.

      But, “fair trade” is one of the great intellectual frauds of  the twentieth century.  The louder politicians have demanded  fair trade, the more U.S. trade policies have become a travesty  of fairness.  The U.S. government has created a trade lynch law  that can convict foreign companies almost regardless of how they  operate.   Between 1980 and 1989, the U.S. Commerce Department reached a “not guilty” verdict in only five percent of its investigations of foreign dumping.  Three thousand foreign companies have been penalized  since 1980 for selling their products to Americans  at  prices lower than the U.S. government approved.

     When politicians call for ‘fair trade’ with foreigners, they  routinely use a concept of fairness that is  diametrically  opposed to the word’s normal usage.  In exchanges  between individuals – in contract law – the test  of fairness is  the voluntary consent of each party to the bargain: “the free  will which constitutes fair exchanges,” as Sen. John Taylor wrote  in 1822.  When politicians speak of unfair trade, they do not mean  that buyers and sellers did not voluntarily agree, but that U.S. government officials disapprove of the bargains American citizens  chose to make. 

     Fair trade, as the term is now used, usually means  government intervention to direct, control, or restrict trade.   Fair trade means government officials deciding what Americans  should be allowed to buy, and what prices they should be forced  to pay.  Fair trade is paternalism applied to international  commerce.  Fair trade means subjugating the economic interests of  private citizens to the moral and political values of government  policymakers.

     Fair trade often consists of some politician or bureaucrat  picking a number out of thin air and imposing it on foreign  businesses and American consumers.  Fair trade  means that Jamaica is allowed to sell the U.S. only 970 gallons of  ice cream a year, that Mexico is allowed to sell Americans only  35,292 bras a year, that Poland is allowed to ship us only 51,752  pounds of barbed wire, that Haiti is allowed to sell the US only  l6,070 tons of sugar.   Fair trade means restricting peanut  imports to the equivalent of only two foreign peanut per year for  each U.S. citizen, restricting cheese imports to one pound per year for each citzen, and restricting ice cream imports to one teaspoon per American per year.  Fair trade means that the U.S. Congress can  dictate over 8,000 different taxes on imports, with tariffs as  high as 458%.

     Fair trade is generating a new economic scholasticism.     Thirteenth century theologians debated the doctrine of the  “just price.”  Today, U.S. Commerce Department employees spend their  lives ensnaring foreign companies in quibbles over what  is a used forklift, how a company disposed of wilted flowers, and how to account for the costs of storing frozen  raspberries.   The Commerce Department recently penalized a  Japanese company for selling typewriters in the U.S. for a  fraction of a penny less than in Japan.  A federal judge  criticized American TV manufacturers for using American trade law  to conduct an “economic war” against their Japanese competitors.

     American trade negotiators have exerted far more effort to  close the U.S. market than to open foreign markets.  Since 1980,  the U.S. government has negotiated 170 bilateral trade agreements  to restrict exports to the United  States.  If a Third World  nation’s exports of a clothing item  equal 1 percent or more of U.S. production, the U.S. government almost  automatically restricts that nation’s exports.  U.S. trade law has turned incompetence into an entitlement, as any  lagging American company has a right to seek relief from foreign competition.  Foreign nations are increasingly  denounced as unfair unless they provide “affirmative action”  programs to force foreign businesses to buy more American  products.

    Webster’s New World Dictionary defines “fair” as “just and  honest; impartial; unprejudiced.”  Yet, most of the foreign trade  practices deemed to be unfair are not considered unfair if  done by the U.S. government or by an American company.  U.S.  government officials loudly denounce Japan’s beef import quota, though the U.S. also imposes import quotas on Australian and  Argentine beef.  The U.S. levied an import surtax on Thai rice  in 1986 because of a small Thai government rice subsidy – though the U.S. government was simultaneously providing a subsidy over a hundred  times larger to American rice growers.  American trade law  requires foreign companies to earn a significantly higher profit  than American companies – or else the foreign companies are penalized as if they were selling at a loss. 

        In federal unfair  trade investigations, foreign companies are automatically assumed  to be lying and American companies are automatically assumed to  be telling the truth.  The Commerce Department has used information  provided by American firms to punish foreign competitors  even when it knows that the allegations from the American firms   are incorrect or false.

      Fair trade consists largely of the U.S. government  devising new ways to protect American consumers against the  scourge of low prices.  The U.S. government does not penalize foreign companies for charging high prices – only for charging  low prices.  Imported clothing that is priced lower than U.S.  clothing is automatically assumed to threaten to disrupt the  U.S. market. 

      Fair trade aims not to safeguard competition, but  to enrich American competitors.  The most common foreign “unfair  trade practice” is producing a better product at a lower price.   In a nation with hundreds of federal, state, and local consumer  protection agencies, consumers are explicitly denied a role in most trade proceedings of the U.S. International Trade Commission and Commerce Department.

     Federal trade policy is increasingly sacrificing some  industries to other industries.  American manufacturers have been  forced to beg Commerce Department officials for each ton of  specialty  steel they are allowed to import.  The number of American manufacturing  jobs destroyed since 1980 by sugar import quotas exceeds the  total number of sugar farmers in the U.S.   

     American politicians are profiteering on allegations of  foreign unfairness. For American trade policy, need is the basis  of right, and political campaign contributions are the measure of  need.   Congressmen’s solution to the problem of unfair  foreigners is almost always to increase their own power over what  Americans are allowed to buy.  Every restriction on foreign  competition means an increase in political control over the  American consumer.  And to control what a person is allowed to  buy is indirectly to control how a person lives. 

     Though complaints about unfair trade are at a historic high, American protectionists have always found some moral pretext to denounce imports.  In the 1820s, protectionists proclaimed that trade  between England and America could not be fair because England was  advanced and America was comparatively backward.  In the 1870s,  protectionists announced that trade between America and Latin  America could not be fair because America was comparatively rich  while Latin American countries were poor.  In the 1880s,  protectionists warned that trade could not be fair if the  interest rate among the trading nations differed by more than 2  percent.  In l922, Congress effectively defined “unfair competition” as any  foreign cost of production advantage  that existed for any reason  on any product.

     In practice, fair trade means protectionism.  Yet, every  trade barrier undermines the productivity of capital and labor  throughout the economy. A 1979 Treasury Department study  estimated that trade barriers routinely cost American consumers eight  to ten times as much as they benefit American producers.   A 1984  Federal Trade Commission study estimated that tariffs cost the  American economy $81.00 for every $1.00 of adjustment costs saved.  Restrictions on clothing and textile imports cost consumers  $l.00 for each 1 cent of increased earnings of American textile  and clothing workers.  According to the Institute for International Economics, trade barriers are costing American  consumers $80 billion a year – equal to over $l,200  per family.

CONCLUSION
     The myth of fair trade is that  politicians and bureaucrats are fairer than markets – that  government coercion and restriction can create a fairer result  than voluntary agreement –  and that prosperity is best achieved by arbitrary political manipulation, rather than  allowing each individual and company to pursue their own  interest.   Government cannot make trade more fair by making it  less free.

     Our great grandchildren may look  back at the trade wars of  the twentieth century with the same contempt that many  people today look at the religious wars of the seventeenth century –  as a senseless conflict over issues that grown men should not  fight about.   Every voluntary trade transaction is mutually beneficial, otherwise the parties would not agree to trade.  Most trade wars consist of  politicians turning a squabble over the division of benefits into  a schism  that makes all the nations involved losers. 

      Many people consider the idea of fair trade in the abstract  and judge trade policy simply by the question of whether  fairness in itself is a good or bad thing.    We need to  understand the contrast between the ideals and the realities of  fair trade.  Fair trade can only be as fair as the trade  laws and the restrictions that governments proclaim in the  name of fairness.  

     The best way to understand fair trade is to examine how our  trade laws, trade agreements, and trade restrictions actually  operate.  We will  examine the U.S. tariff code, import quotas,  how the dumping law operates, the U.S. government’s judgments on foreign’ subsidies, the U.S. International Trade  Commission’s role in unfair trade investigations, the failure of trade retaliation, the  nature of political control of trade, and the moral essence of  trade restraints.