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, only free trade allows the world to profit from these efficiencies. However, special interest groups constantly want to aggrandize themselves at the expense of their society by limiting trade so they can charge higher prices for their products or services. Most 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
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 and 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 reduces 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 are reluctant to change jobs, but ultimately they will adapt, as they must.
National Security
An argument often made is that an industry should be protected to improve national security, an argument often used by the industry itself because it doesn't want to compete with foreigners. For some products or services, 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. Some cases do pose a national security risk, but without an absolute or comparative advantage in producing the product, a country would have little choice but to trade. For instance, the United States highly depends on oil, which can certainly be considered a strategic resource since the United States economy depends on it, but the United States must import some oil. Even military hardware is composed of parts made in other countries.
Infant Industry
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 must pick winners and reject losers. That's difficult for anyone to do, but it would be especially difficult for the unionized bureaucrats controlling most governments. In actuality, the main recipients of this type of protection are the politically and financially powerful. Governments are significantly influenced or even controlled by special interest groups, particularly the wealthy.
Unfair Competition
Many 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 are higher. While this may be true, consumers would still benefit from lower prices. If another country wants to subsidize an industry, consumers in other countries will still benefit from it at the expense of the taxpayers of the government giving the subsidies. Thus, 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 1992 and enacted in 1994, lowered trade barriers among the United States, Mexico, and Canada. NAFTA was replaced by the similar United States–Mexico–Canada Agreement (USMCA) in 2020. The new treaty changed some provisions, such as requiring that a car or truck can only be free of tariffs if 75% of their components are manufactured in North America instead of 62.5% under NAFTA.
In 1995, many countries signed the General Agreement on Tariffs and Trade (GATT), the goal being to reduce trade barriers around the world. GATT was replaced in 1995 by the World Trade Organization (WTO), headquartered in Geneva, Switzerland. The main goals of the WTO is to set and enforce international trade rules, provide a forum to negotiate and monitor ways to improve trade, and to resolve trade disputes.
These broad trading agreements 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.