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Contest Essay

Free Trade and Foreign Policy


     
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1999-2000 Contest Honorable Mention

Just a few hundred miles South of Miami, lie the Caribbean islands, a popular tourist spot for many Americans. Along with their sandy beaches and warm water, these Caribbean islands possess something far uglier and far more insidious: poverty. The vast majority of the Caribbean’s residents have no running water and no electricity. Many of them exist in cardboard boxes. Much of the people in the Caribbean suffer nasty, brutish, and short lives.

A good deal of the Caribbean’s poverty, from Jamaica to Trinidad, could be eliminated rapidly if these nations could sell more of their sugar abroad. Being able to sell more sugar would mean greater demand for workers, more jobs, and growing economies. If economic growth increases by even a single percentage point, this translates into massive changes in the standard of living in a fairly brief time, thanks to the magic of compounding. To illustrate this point, one should envision two nations, one growing at 1% per year, and the other growing at 3% per year. After ten years, the economy that grew at 3% will be over 23% bigger than the economy that grew at 1%. This economic growth buys a great deal of running water, basic medicines, primary education, and decent housing, which are desperately needed throughout the Caribbean region.

The tragedy is that these nations could sell more sugar, if it weren’t for our highly restrictive tariffs and quotas on sugar imports. This tragedy is doubled when one realizes that we as a nation do not even benefit directly from these tariffs and quotas. Our consumers have to pay more for sugar or any product that contains sugar. Various US manufacturers have to pay more for sugar to use in their product, or use an inferior sweetener, such as corn syrup, which makes their products less competitive in world markets. All this just to enrich a few sugar growers, who happen to benefit from the filthy lucre of political largesse. So our restrictive trade policy in sugar damages U.S. consumers and many U.S. manufacturers, and retards the Caribbean’s development to boot, leaving millions mired in the grip of raw, squalid poverty.

As tragic as this is, what does this have to do with peace? The answer to this question is “everything”. In the Caribbean, the Socialist movement has often been quite powerful, using the masses’ ignorance and want to press forward with a statist agenda. As people live in hunger and need, they become more susceptible to extreme and easy-sounding ideologies. Indeed, the hungry increasingly gravitate to the ideologies of racism, fear, and xenophobia. This creates an opportunity for militants to sell violence to the masses. A prime example of this phenomenon in the Caribbean is the small nation of Haiti. As people live in poverty of the most disgraceful kind, they pick leaders who blame a local minority, or a different political group, for a nation’s problems. A violent civil war often follows, and a nation’s civil society is destroyed.

While our sugar policies are not the source of Haiti’s brutal civil war, it is clear that the economic growth provided by free trade in sugar would certainly have made Haiti’s destruction less likely. More people would have been gainfully employed, fewer people would have been living in squalor, and fewer people would have been susceptible to messages of violence and hate.

The Caribbean is not alone in this analysis. Much of the underdeveloped world grows and produces agricultural products. Because many of these underdeveloped nations have very little political clout with the rest of the world, and because farmers in wealthy nations have lots of political power, the goods from these poorer nations are tariffed and quota’d right out of the richer nations’ markets. This helps keep our underdeveloped friends mired in poverty, making them more likely to embrace militant and racist ideologies, ending in bloody tribal warfare and civil war. Even more disturbing are the heavy tariffs placed by the US and Europe on certain goods coming from Russia and Eastern Europe. As nations try to climb out of Communism, it is criminally immoral to place barriers to their market-based growth. In addition, placing tariffs on their goods is downright dangerous. As we all know, Russia, Byelorussia, and the Ukraine all have nuclear weapons. Retarding their economic growth leads to further impoverishment of their people, making the masses susceptible to the warmongering of politicians like Zhirinovsky and the Communists. In addition, by lessening Russia’s market-based opportunities of gaining wealth, our barriers raise the probability of Russian weapons sales to all sorts of aggressors around the world, creating further threats to peace. When it comes to Russia and its neighbors, any deviation from free trade is a threat to world peace.

As we take a look around the world, it becomes increasingly apparent that unilateral free trade on the part of the United States would be one of the truly great policies ever implemented. In addition to being great economic policy, unilateral free would probably be one of the great humanitarian policies ever, not to mention an absolutely necessary part of any decent foreign policy. Unilateral free trade by the United States would create new opportunities for less developed nations around the world to grow and make things to sell to us, and would lessen opportunities for racists and extremists in the developing world and in the former Soviet Union.

The developed world’s trade policies are only a small part of the problem. The underdeveloped world must also pursue policies of free trade. In the not-so-distant past, many poorer nations, such as India, thought the path to riches lay in very high tariffs and central planning. This idea, called “import substitution,” essentially argued that the government of a poor nation could decide which industries should grow, and then subsidize those industries and set up massive barriers to foreign goods. This experiment, like any experiment with central planning, has proven to be an unmitigated disaster. A policy of free trade, by allowing entrepreneurs to respond to domestic and world prices, automatically and correctly directs resources into a nation’s best abilities and assets. If a good costs less in India than in the rest of the world, then India should export that good. If a good costs less outside of India, then India should import the good. As economists have pointed out, trade is essentially a type of technology. Trade turns the goods a country values less (exports) into goods the country values more (imports). Barriers to trade amount to destroying a nation’s most efficient factories. (In the US, for example, our most efficient car manufacturers may be our farmers, who produce wheat and corn which is then traded for cars.) Free trade, instead of bureaucratic and bloated import substitution, is the path to a wealthier, healthier society. By stymieing economic growth, import substitution, with its command-and-control approach, makes nations poorer, leading to the aforementioned problems of racism, xenophobia, extremism, and violence.

In addition, the import substitution approach also helps to entrench evil cultural norms. As you read this, 200 million Indians experience the squalor and degradation that goes with being an untouchable, a member of the lowest class in India’s ancient and complex social system. 200 million people have to take their shoes off when they walk through the local village, have to take the worst, most dangerous, and filthy jobs, and must beg for forgiveness when a member of the higher caste perceives the slightest wrong. This despicable, oppressive social system continues despite the official illegality of the caste hierarchy. One major reason for the caste system’s persistence is the lack of free labor markets. Workers are tied to the land, and their landlords. Heavy regulations on hiring and firing create rigid labor markets, so that the workers’ jobs and wages are determined by tradition, rather than market forces. This traps workers in their rural villages. The heavy regulations in urban areas choke off businesses in the city, greatly limiting the untouchables’ ability to escape the poverty of the country. Local officials, with a great deal of regulatory power, can make or break businesses. The local officials are inevitably members of the Brahmin upper class. All of these factors help to entrench a system that is both inefficient and horribly unfair. This system creates a lower class with festering anger and hatred at their lot. Many of the untouchables are training themselves in the use of arms, to defend against violence by their Brahmin landlords. (Untouchables often have no legal recourse when assaulted by a Brahmin.) Over the long term, strife and civil war threaten the very stability of society.

Free trade would aid the untouchables and contribute to India’s social stability in several ways. First, many essential items, such as certain food products, would be cheaper. This would benefit the untouchables in an immediate and direct way. In addition, as certain industries decline and others rise, the returns to entrepreneurship increase, and the old traditional jobs are swept away and are replaced by newer jobs. If people wanted employees, they would have to bid for them, rather than inheriting them. The Brahmin landlords’ power over the untouchables would slowly erode, just as the Industrial Revolution destroyed Britain’s feudal system of rural landlord/master and rural serf. (Note that the wages of workers increased rapidly in Britain during the 1850-1890 period, following the repeal of the Corn Laws.) As India moved to freer trade, the untouchables would gain a wider choice of jobs, and Brahmins would have to pay market wages to attract untouchables’ labor. The entrenched traditional class system would be replaced by a newer, more dynamic economic system, which would add to social and economic mobility. Moving to free trade would help to destroy rigid hierarchical class systems in a peaceful process, helping move India to a freer, fairer society and sidestepping an otherwise inevitable violent revolution.

India also makes good subject matter for another reason: they and Pakistan hate each other, and both have nuclear weapons. As the prospect of an arms race on the Subcontinent looms, we are left to ask the question “what if they had free trade?” Perhaps the most important contribution of free trade to peace is its fostering of direct ties between individuals of different nations and cultures, which would clearly benefit the citizenry of India and Pakistan. If the mostly Hindu Indians and mostly Muslim Pakistanis traded more with each other, they would foster closer ties based initially on commerce. Hatred would become far less profitable, and the prospect of peace would be far more realistic.

History supports this view. It is no accident that the period of 1815-1914 still remains, at this point, the longest period in history without an all-encompassing war. It is no coincidence that this period also saw the greatest increase in free trade. As nations trade with each other, ties between individuals in different lands are born. Individuals in these nations cross cultural and racial lines to do business with each other. Aggression against one’s neighbors becomes less politically popular and less profitable. Europe in 1815, following the Napoleanic Wars, began a period of rapid economic growth and peace, fueled by the increase in intra-European trade and freer markets. In 1890s Europe, free trade was on the wane, and the European powers began struggling against each other for natural resources around the world. The powers built massive systems of alliances during this struggle, which led to the precipitation of World War I when a Serbian Nationalist assassinated the Archduke Franz Ferdinand. The horror of World War I was followed by a period of statism, heavy government intervention around the world, and a further decline of free trade. As we all know, World War II followed soon thereafter. The decline of free trade helped create the bloodiest 50-year period in mankind’s history. Free trade helped usher peace into the European Continent in the 19th century, and the decline of free trade contributed to the rise in aggression in the early 20th Century. The postwar era has seen expanded trade in the Western World, and concomitant peace. The fall of Communism has offered an unprecedented opportunity to create a peaceful world community based on the open exchange of ideas and goods. So far, we have failed, by not pursuing free trade more vigorously here and around the world.

The post-Cold War era right now is the era of hope. Great power struggles are a thing of the past. The systems based on central planning and brutal repression are now known to be colossal failures. With the Asian crisis, softer central planning has also been discredited. Right now, the US has one of the best opportunities ever known to humanity to spread peace and freedom around the world. Free trade represents the best of these opportunities, as it spreads peace through freedom. The world faces many challenging problems in this new era. One of these problems includes the rise of suppressed ethnic tensions and cultural hatreds following the fall of the Soviet Empire and Tito. Free trade helps to alleviate these ills by fostering ties between people of different colors, languages, ethnicities, and races. The world faces poverty, and the rise of factionalism, demagoguery, and civil war. Free trade aids in the cure of these ills by creating newfound, peaceful, market-based sources of growth for the citizens of poorer nations, especially those citizens in the former Soviet nations; nations which possess a dangerous mix of nuclear weapons and militant nationalist movements. In short, free trade represents the path to prosperity and peace.


Keith Brown is with the Department of Economics at Texas A&M.






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