Trade Restriction Arguments

The science of economics — and common sense — clearly show that trade benefits all economies. Because countries have different absolute and comparative advantages in producing products and services, free trade is the only way that the world could take advantage of these efficiencies. However, there are always special interest groups who wish to aggrandize themselves at the expense of their society by limiting trade so that they can charge higher prices for their products or services. Most of these special interest groups are unions or companies that want to prevent competition. To justify their position, they have presented several arguments as to why trade should be restricted.

Job Preservation

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A primary argument often presented to restrict trade is that trade reduces the number of jobs available domestically. While this is true of specific industries, trade does not generally reduce jobs overall, because trade allows consumers to pay lower prices, which, in turn, allows them to buy more products and services. Since many of these products and services are domestically produced, the increased purchasing power of the consumer stimulates job creation domestically as well as internationally. Furthermore, 3rd world countries with lower wages become richer, allowing them to buy more exports from industrialized countries.

The job preservation argument is often presented by unions to protect union jobs. However, unions stifle the economy by preventing companies from getting the lowest prices for their inputs, forcing them to raise prices. Furthermore, companies are often prevented from using automation or robotics so that unions can preserve jobs, which is ironic, since automation and robotics make workers more productive, thus allowing companies to pay union wages and benefits. Furthermore, unions actually decrease jobs, since there is less demand for higher-priced labor. Moreover, restricting trade to benefit unions forces everyone else to pay higher prices for that benefit — hence, the few people in unions benefit at the expense of everyone else.

An economy can operate at maximum efficiency only if the labor force is mobile, where people would be willing to change jobs as the need requires. To protect labor so that they can keep certain jobs would reduce economic efficiency. For instance, imagine that blacksmiths were able to prevent the arrival of the automobile. People must accept that the economy, and therefore jobs, is constantly changing, so they should manage their finances to accommodate that possibility. Many people are reluctant to change jobs, but ultimately they will adopt, as they must.

National Security

The argument is often made that an industry should be protected for national security, an argument that is often used by the industry itself because it doesn't want to compete with foreigners. In some cases, this is a legitimate argument. Certainly, manufacturing H-bombs or printing domestic currency should not be outsourced. However, the national security argument cannot be applied to most goods and services. And there are some cases where the national security argument would be plausible, but because the country does not have an absolute or comparative advantage in producing the product, it would have little choice but to trade. For instance, the United States is highly dependent on oil, which can certainly be considered a strategic resource, since a significant part of the United States economy is dependent on it, but it would be very difficult for the United States not to import oil. Even military hardware is composed of parts made in other countries.

Infant Industry

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The argument is often presented that infant industries should be protected until they can sustain themselves. Some mature industries argue that they should be protected so that they can adapt to new conditions. However, the whole point of competition is to allow only the most successful companies to thrive. The government would have several problems in enacting trade restrictions based on the infant industry argument. First, the government would have to pick winners and reject losers. That's difficult for anyone to do, but it would be especially difficult for the unionized bureaucrats that control most governments. In actuality, the main recipients of this type of protection are usually people who are politically and financially powerful. There is no government today that is not significantly influenced, or even controlled, by special interest groups, particularly the wealthy.

Unfair Competition

Many people argue that industries in other countries are subsidized by the government or suffer from fewer restrictions, giving them an unfair advantage. For instance, many 3rd world countries have less strict environmental laws than in industrialized nations, where compliance costs can be quite high. While this may be true, consumers would still benefit from lower prices. If another country wants to subsidize an industry, then consumers in other countries will still benefit from it at the expense of the taxpayers of the government giving the subsidies. For this reason, a unilateral reduction in trade restrictions can be desirable.

NAFTA and GATT

During the past several decades, many countries have worked to reduce trade barriers. The North American Free-Trade Agreement (NAFTA), signed in 1991 and enacted in 1994, lowered trade barriers among the United States, Mexico, and Canada.

In 1995, many countries signed the General Agreement on Tariffs and Trade (GATT), the goal of which is to reduce trade barriers around the world. GATT is administered by the World Trade Organization (WTO), headquartered in Geneva, Switzerland.

These broad trading agreements help to limit the influence of special interest groups and have demonstrated over the years that the member countries of these agreements have prospered from the lower trading restrictions with little loss of jobs.