1
In 1848 Frederic Bastiat penned the words of the first manifesto for the
Association of Free Trade. In them, he elucidates the troublesome principle behind tariff
and tariff-like-restrictions on trade. “Exchange, like property, is a natural right, to deprive
anyone of this option when they have committed no act contrary to public order and good
morals, and solely to satisfy the convenience of another citizen, is to legitimize an act of
plunder and to violate the law of justice.” (Bastiat, “The Law”) Tariffs, by increasing the
cost of international trade, increase the cost of selling products, hence generating the very
scarcity trade is meant to counter. These tariffs are not only harmful to many American
industries, but also disregard basic principles of a free market by disadvantaging
American consumers and companies for the benefit of a single industry. This paper will
evaluate economic statistics, unilateral tariff reductions, and bilateral trade agreements to
show that pursuing free trade agreements is the most economically beneficial stance the
United States can take on international trade.
A free trade agreement is a policy requiring the interchange of goods and services
unhindered by high tariffs, nontariff barriers, or unilateral requirements (Business
Dictionary). When evaluating free trade agreements it is important to understand the
principles of economic abundance and scarcity. Frederic Bastiat in his work, “Economic
Sophisms,” explains the application of the principles of abundance and scarcity with an
analogy that can easily be cross-applied to the modern world. The United States is home
to over 300 million Americans who use lighting every day in cars, workplaces, and
homes. This makes the lighting industry one of the most fundamental components of the
American economy. If a comprehensive analysis were to be performed on all US lighting
industry competitors in the world one competitor stands out. This competitor can produce
2
lighting in a greater quantity than any American industry, provide it with nearly limitless
reach, and does so at a far lower cost to consumers. This competitor is the sun. If the US
lighting industry attempted to lobby Congress for tariffs on any household or business
that used the sun's light, they would be laughed out of any Representative’s office
because the cost of limiting the suns light is clear for all to see. The only difference
between current protectionist tariffs and this example is that the cost to consumers is less
obvious.
It is clear that a policy of abundance will create the most prosperous economy.
Economist Arnold Harberger, from the National Center for Policy Analysis, wrote a
report on the economic gains trade creates. He concluded in part one of his article by
stating, “International trade raises the level of GDP in both the importing and exporting
country but not the rate of GDP growth” (2006). Earlier in the article the author
determined that while the rate of GDP will not increase in the long run, any country that
increases international trade would experience “a modest spurt of growth.” The reason
countries with free trade agreements see a temporary increase in total Gross Domestic
Product is fairly simple. Hardberger (2006) explains, “The economy goes from a lower to
higher level of efficiency.” Later in the article he continues, “One of the most important
sources of economic growth is the reduction of firms’ real costs through increases in the
productivity of labor and capital used to produce goods.” Reducing tariffs increases
efficiency and decreased cost. In the final part of Hardberger’s article he examines the
effect of 59 cases of trade liberalization from 1960-2001. “Exports grew over 2
percentage points faster in 37 cases and faster by over 4 percentage points in 21 of the 59
cases” (2006). In the 59 cases of trade liberalization, 58 cases experienced substantial
3
growth in exports, thus increasing money flow into the country. After a thorough
examination of Hardberger’s article it can be assured that reducing tariffs through free
trade agreements will provide a comparatively advantageous economy.
It is important to make sure American FTAs are not replicated but tailored to each
country’s needs without ignoring the economic principles that founded our nation. An
article written by Pat Choate and Juyne Liner (1998), examines the way free trade
agreements are formed. Their claim is that free trade agreements must be tailored to each
countries economic system individually. Choate and Juyne provide a chart showing that
Non-Anglo-American Systems account for 73% of World Trade, these are economies
that do not pursue the same principles of free and fair trade that we see in America. They
assert that our system is outdated and needs reform in order to become effective. While
FTAs should be tailored to each country, sacrificing our economic principles of free and
fair trade is not a sensible choice. The system our government currently uses is effective
and beneficial, as long as a country reduces tariffs their economy will grow.
The first example in support of this thesis comes from a report published by the
Australian Department of Foreign Affairs. “During the deepest global recession since the
Great Depression, Australia was unique among the major advanced countries. While
more than 11 million jobs were lost in North America and Europe during the global
recession 413,000 new jobs were created in Australia…This resilience was born of their
exposure to international competition through gradual reductions in industry protection.”
(Australian Department of Foreign Affairs, 2011)
Unquestionably, reducing protectionist policies saves jobs even during
devastating recessions. Many critics argue that this evidence does not apply to the United
4
States. This position has no standing, as there is no difference between tariff reduction in
Australia and tariff reduction in the United States. However, despite Australia being a
perfect example of free trade success, I would like to provide an example of American
FTAs having similar outcomes. Laura Baughman and Dr. Joseph Francois best explained
this prosperity in a report from the United States Chamber of Commerce in 2010. “We
use a comprehensive methodology that enables us to account for all the upstream,
downstream, direct, and indirect effects of trade not only in goods but in services as well.
We examined FTAs in effect in 2008. We find that the FTAs in 2008 generated $304.5
billion in U.S. output, or 2.1 percent of U.S. GDP. They expanded total U.S. exports of
goods and services to the world by $462.7 billion. Finally, they supported 5.4 million
U.S. jobs. This is output, exports and employment that would not exist in the absence of
the 2008 FTAs.” (Baughman and Francois, 2010)
The United States faces a decision. This paper has examined economic statistics
showing that the level of gross domestic product increases when tariffs are removed.
There is historical precedence for unilaterally removing tariffs as seen in Australia.
Finally, American bilateral free trade agreements have created sizeable benefits to our
economy as seen through the creation of jobs. With all of this evidence in mind it is
irrefutable that international free trade agreements are in the best interest of the United
States.
5
Bibliography
Baughman, Laura M., and Joseph Francoiss F. "OPENING MARKETS, CREATING
JOBS: Estimated U.S. Employment Effects of Trade with FTA Partners." U.S.
CHAMBER OF COMMERCE (n.d.): n. pag. U.S. CHAMBER OF COMMERCE
WEBSITE. US Chamber of Commerce, 2010. Web.
"Trading Our Way to More Jobs and Prosperity." Australian Department of Foreign Affairs
and Trade, Apr. 2011. Web.
Bastiat, Frederic. The Law. Irvington-on-Hudson, NY: Foundation for Economic Education,
1950. Print.
Bastiat, Frederic, and Arthur Goddard. Economic Sophisms. Princeton, NJ: D. Van
Nostrand, 1964. Print.