In the wake of the high unemployment, mortgage foreclosures, and general economic uncertainty flowing from the financial crisis, most Americans have understandably focused on its domestic effects. Far less attention has been given to the global recession’s international ramifications. This is unfortunate, for one of the most significant effects has been a profound decline in world trade—and this, in turn, may serve to exacerbate the crisis.
Estimates vary, but according to the IMF, total world trade in goods and services will decline by 12.2% in 2009. Accompanying these developments have been fears of resurgent protectionism. The Economist argues, however, that such worries have proved to be overrated. In one sense, this is true. If by protectionism we mean the raising of tariff barriers, then we have not seen anything like the 1930 Smoot-Hawley Tariff Act that limited foreign access to America’s markets and helped facilitate the Great Depression. Indeed, some countries, such as Australia and China, have actually reduced import duties.
On the other hand, the European Union and the United States have introduced new farm subsidies to already outrageously subsidized agricultural sectors. Moreover, there are other ways to impede or distort the relatively free access of individuals and businesses to global markets. One example is the early 2009 stimulus package passed by the American Congress. It contains “Buy American” provisions that actively discriminate against foreign imports.
Yet another instance of creeping impediments to free trade is the recent demand by several United States senators that any cap-and-trade bill contain “a longer-term border adjustment mechanism”—in other words, a tariff—to protect American industry against competition from countries that refuse to adopt expensive carbon-emission measures similar to those contained in the Waxman-Markey bill passed by the House of Representatives. Some European Union countries, most notably France, have insisted that “economic measures” should be taken against those countries that don’t enact carbon-emission requirements like those embraced by the EU. India and China have already told the United States they have no intention of adopting such policies on the grounds that they would drastically impede these nations’ ongoing rise out of poverty—one of the economic miracles of our time.
But why, some might ask, are these emerging barriers to free trade so worrying? Shouldn’t governments encourage “economically patriotic” policies? Surely a government should “look after its own.”
There are two reasons why free trade should be protected and promoted. The first concerns free trade’s profound contribution to global economic prosperity. The second is that free trade is a human right—not an absolute right, but a right that governments should only circumscribe in the most adverse of circumstances.
The economic case for free trade was codified by Adam Smith when his Wealth of Nations was published in 1776. He challenged the then-reigning mercantilist orthodoxy that one country could only become richer at other nations’ expense. “The modern maxims of foreign commerce,” Smith wrote, “by aiming at the impoverishment of all our neighbors, so far as they are capable of producing their intended effect, tend to render that very commerce insignificant and contemptible.” Observing the political and economic conflict between the eighteenth century’s two great powers, France and Britain, Smith commented that “If those two countries . . . were to consider their real interest, without either mercantile jealously or national animosity, the commerce of France might be more advantageous to Great Britain . . . and for that same reason that of Great Britain to France.”
Smith’s point was simple yet revolutionary: free trade would, in the long term, mutually enrich everyone. For one thing, free trade encouraged an ever-increasing depth and sophistication of the division of labor. This facilitated technological development and the ability to grow ever-increasing amounts of wealth. Free trade also created an ever-widening space for individuals, businesses, and entire nations to find, develop, or even change their comparative advantage. As Smith put it, “If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry employed in a way in which we have some advantage.”
It was certainly possible, Smith noted, for a country like Scotland to grow grapes. The financial cost, however, of doing so compared to, for example, growing grapes in Italy, made that an economically foolish choice for Scots. By contrast, individuals, businesses, and countries in a global free market would be encouraged to focus on doing what they did best and would not be incentivized by protectionism into developing industries that, in the long run, couldn’t compete in the marketplace, even with extensive tariffs.
Appeals to economic efficiency and prosperity are enough for some, but just as human beings are more than homo economicus (and Smith himself never thought that human life could be reduced to economics) so too are purely economic arguments insufficient for governments to adopt particular policies, even those concerning economic subjects. But if governments have some responsibility to protect their citizens’ rights, then perhaps they may wish to consider the claim that the liberty to trade goods and services across national boundaries is not a privilege but rather a right.
Excessive rights-talk disfigures much contemporary political discussion, but compared to most modern rights-claims, the idea of free trade as a right has both a much older lineage and a more coherent rational basis. The first to apply the word “right” to free trade was the sixteenth-century scholar Francisco de Vitoria (1492-1546) in his De Indis et de Ivre Belli Relectiones (1532).
According to Vitoria, the right to free trade was derived from the natural right of free association enjoyed by all people. Free association, to Vitoria’s mind, was essential for human flourishing, and he did not believe national boundaries should unreasonably limit people from freely associating with others, including for economic reasons. Interestingly, Vitoria developed this line of argument in the context of claiming that the New World’s native peoples should not be prevented from freely trading with European merchants by either their indigenous rulers or European monarchs. Such were Vitoria’s convictions against mercantilist policies that he even depicted laws unduly limiting free trade between nations as “iniquitous and against charity.”
The Dutch philosopher and jurist Hugo Grotius (1583-1645) also built a rights-based case for free trade. As a target, Grotius aimed at the Portuguese claim to a monopoly of the trade routes to the East Indies. In Mare Liberum (1609), Grotius employed uncharacteristically insistent language to maintain, as an “unimpeachable axiom of the Law of Nations . . . the spirit of which is self-evident and immutable,” that “Every nation is free to travel to every other nation, and to trade with it.”
Grotius’ argument for free trade as a right was based on the premise that nature did not supply every place with the necessities of life. Moreover, Grotius observed (foreshadowing Smith’s economic analysis) that it was clear that “some nations excel in one art and others in another.” These factors meant that if the goods of the world were truly to serve everyone, then free trade was a necessity. Grotius notes that his argument was hardly novel, as it could be found in the works of Roman philosophers such as Seneca (4 B.C. – 65 A.D.). Almost a century after Grotius’s death, we find the same position stated in the most important eighteenth-century text on international law, Emer de Vattel’s Le droit de gens (1758). This book insists that the “obligation,” as Vattel describes it, of nations to engage in mutual commerce, means that those “privileges and tolls, which obtain in many places, and press so heavily upon commerce, are deservedly to be reprobated.”
To be sure, none of these thinkers considered free trade to be an absolute right. Grotius and Vattel believed, for example, that states engaged in a legitimate war could justly prohibit its citizens from trading with citizens of enemy powers. Nor was Smith an absolutist about free trade. In some circumstances, he was willing to approve certain subsidies for particular industries. Generally, however, Smith insisted that the onus of proof for the wisdom of interfering with free trade lay with those proposing a restriction or subsidy.
Will free trade, either as a right or an empirically validated economic argument, ever gain universal acceptance? Smith himself concluded there was so much resistance to free trade arising both from economic ignorance and also established interests determined to protect themselves from competition by whatever means necessary that “to expect . . . that freedom of trade should ever be entirely restored in Great Britain, is as absurd as to expect that an Oceana or Utopia should ever be established in it.”
One of Smith’s contemporaries and greatest admirers, the English philosopher and politician Edmund Burke, once wrote that “Free trade is not based on utility but on justice.” Certainly the economic argument for free trade’s long-term economic utility and protectionism’s detrimental effects is difficult to refute. Yet it may be that free trade’s greatest hope in the long term will be that enough people recognize there is something fundamentally unjust about unduly impeding the ability of all the world’s resources to serve all human beings in an increasingly globalized world in which nation-state borders mean less and less.
Samuel Gregg is Research Director at the Acton Institute. He has authored several books including On Ordered Liberty and his prize-winning The Commercial Society. His forthcoming book, Wilhelm Röpke’s Political Economy, will be published in early 2010.