True Free Trade vs. ‘Free Trade Deals’: The misappropriation of Freedom

One of the most frustrating aspect of those trade negotiations that are sold as ‘Free Trade Deals’ is that they are not truly ‘Free Trade’ and, instead, they are just selective liberalisations that work to enrich particular interests, that increase the disparities between those who are endowed with political resources and those who are not, and that work to foster global, systemic trade imbalances (whether that be frustrating, persistent trade deficits or gross trade surpluses). Of course, this leads to advocates of True Free Trade to have a bad name despite the fact that the purist position is the most morally humane and efficient means through which to alleviate global poverty, improve peoples’ welfare and tackle corporatist privileges.

 

Free Trade, broadly speaking, in the purest sense of the term would involve a situation where there are no tariffs, subsidies, quotas and significant trade restrictions such as licensure restrictions (which all work to unduly restrict exports and imports and, thereby, impede the flow of goods, services and income globally). Such a situation would work to alleviate both domestic and global inequalities.

 

This is because tariffs, subsidies, quotas and licensure restrictions are all, effectively, forms of quantity and/or price controls and manipulation that impose incentive structures that redirect the expression of demand and supply across the affected markets inefficiently and in ways that they otherwise would not have been expressed in a more ‘natural’ equilibrium.

 

Spillovers onto other markets

 

This also has spillover effects on other markets – for example, targeting particular imports and particular countries’ exports with tariffs, licensure restrictions and/or indirectly by subsidising competitors’ products domestically will have an impact on other markets as consumers and producers are forced to substitute spending and production accordingly.

 

For example, tariffs imposed upon foods imported from abroad means that consumers have to pay higher prices for many ‘necessary’ goods (to the extent they may even end up partially substituting to relatively ‘inferior’ goods and compromising on the quality of their consumption) and this will have an impact upon other markets for goods and services (as it pertains to those on lower incomes especially) which would correspond to reduced demand and reduced incomes for (most) parties involved.

 

More commonly, we observe market distortions through subsidies. Although these may be well-intentioned in terms of working to protect domestic employment or meeting domestic policy objectives, the fact that remains that, although consumers may not be affected by lower prices directly, the subsidies come out of taxpayers’ pockets and incomes are forcefully redistributed in this way.

 

Moreover, it reinforces the reliance that the recipients of subsidies have upon governments’ ‘benevolence’ which, thereby, leaves them vulnerable to policy makers and the political tide of opinion and perception – this means that when the governments’ favour toward them inevitably runs dry, they will be left without livelihoods and plunged into poverty.

 

There can be no true ‘Free Trade’ without Monetary Freedom and Free Banking

 

Although Free Trade is largely thought of in terms of subsidies, tariffs, common standards etc. these are all part and parcel of price controls and price manipulation more broadly through selective, interventionist policies. When considering the important role that prices play in Free Trade, we must consider the important role that money plays in this. Monies, being the media of exchange for goods and services, lead to arguably the most profound spillover effects across, between and within economies.

 

As such, when considering the exchange of goods and services, if a country’s population is restricted to the usage of only one money through various imposed mechanisms (whether that be taxation policy, legal tender legislation, restrictions on private money issuance and usage, financial markets more broadly etc.), it privileges some at the expense of many others.

 

For example, some entities may prefer a relatively high exchange-rate due to the fact that their goods and services require many imported inputs and, therefore, this will reduce the input costs associated with their production (whether that be labour, physical capital or otherwise). However, some entities will prefer a relatively low exchange-rate because they need to compete in markets with other producers (who may also be using monies with relatively low exchange-rates) and, as such, they could be entirely excluded from entire markets merely because of not being able to use such monies.

 

Therefore, it is plain to see that, since agents do have diverse and varying preferences, true Free Trade cannot be achieved without Monetary Freedom because, regardless of what exchange rate(s) (or interest rates, for that matter) are uniformly imposed upon the population, many will be unable to trade as effectively and as efficiently as they would if they were allowed to pick and choose the currencies according to their preferences for the corresponding exchange rate.

 

For example, the Euro may benefit particular German exporters since they do not face the risk of currency wars and competitive devaluation from competing, geographically nearby entities but inhabitants of Southern Europe continue to grow weary and frustrated with the European Central Bank’s single-currency regime.

 

Similarly, though there is talk in Britain of how there is an opportunity for more Free Trade, the ‘Free Trade Deals’ that will be negotiated or struck will inevitably neglect and leave many behind who do not have the political resources or clout to ensure a ‘good deal’ for them. However, even presuming that a ‘good deal’ is reached for all in terms of trade policy, tariffs, subsidies etc., the problem still remains that entities’ costs are inflated and exports are diminished accordingly when they are restricted to using particular monies.

 

When considering how to make ‘True Free Trade’ work for everyone instead of merely extending ‘Free Trade Deals’ that benefit some at the expense of others, the conversation must be had in tandem with the increasingly timely calls for significant monetary reform in terms of Free Banking especially since Central Banks reach the limits of their policies and come under increasing pressure.

 

Free Banking is not merely restricted to benefits in the financial markets and its benefits go hand-in-hand with the benefits of a truly free market with true free trade that peoples across the world are yet to genuinely experience.

1 Comment

  • @JagPatel3 says:

    The longest standing distortions in the market are due to subsidies handed over to defence equipment manufacturers who have consistently failed to deliver equipment to the Armed Forces which is fit for purpose, adequately supported in-service and constitutes value for money.

    At a time when this Government is making repeated and permanent cuts in public spending, it cannot afford to subsidise failure in the Defence Industry any longer.

    The best way to wean Defence Contractor off public subsidies is to get Government to replace them with Private Sector investment funding. Not only will such a bold move ease the pressure on the Exchequer, but it will also go some way towards tackling the budget deficit – and with it, the bourgeoning national debt.

    This innovative proposal is at the heart of a Defence Industrial Strategy that puts the National Interest first, not military equipment manufacturers’ interests. It comes in the form of written evidence submitted to and published by the Business, Energy and Industrial Strategy Committee, which is conducting an inquiry into Industrial Strategy.

    The submission observes:

    “It is called the Private Sector for a reason – so that it can use Private Sector funds, not Public Sector subsidy to innovate, grow, create jobs and make a profit. It is the job of Government to foster an environment which causes this to happen, within the context of a modern Industrial Strategy.

    If the Government is going to intervene in the market with public funds to stimulate economic activity and boost export-led growth, then provision of this subsidy should be made conditional upon Private Sector players making an equivalent contribution of investment capital to increase the competitiveness of their own products and services, both in the domestic and export markets.

    As for the Ministry of Defence, there exists no evidence that its long-standing policy of securing input of Private Sector investment capital into defence equipment programmes is being applied, which means that they continue to be funded exclusively by the taxpayer – yet, the Intellectual Property Rights for the resultant fully engineered equipment, which rightly belong to the Exchequer, is simply handed over to the main Contractor for nothing in return!

    Accordingly, to avoid repeating mistakes of the past, a revamped Defence Industrial Strategy should have at its heart, a built-in mechanism which elicits Private Sector capital into defence equipment acquisition programmes, as its first and foremost priority.

    This submission shows how to go about doing exactly that.”

    And it concludes:

    “At a time when senior members of this Government are firmly behind the view that this country should put economic security first and balance its books at the earliest, there exists an excellent opportunity to introduce a Defence Industrial Strategy which gradually replaces the public subsidy given to Defence Contractors with Private Sector funds.

    Ask not what Government can do for Business, but what Business can do for Government.”

    The full submission can be downloaded via this link:

    http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/business-innovation-and-skills-committee/industrial-strategy/written/36606.pdf
    @JagPatel3 on twitter

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