Among nations today, there are a variety of policies concerning international trade. Some nations use trade as a weapon to enhance their domestic economies at the expenses of other nations.
The United States of America has practiced the idea of FREE TRADE for a number of years. In other words, matters of trade are left to 'free' markets to resolve without government interference.
But, since we compete in a world where our trading partners use trade as a weapon while we do not, some imbalances have been created.
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A short discussion of historical trading systems is shown below. For now, the best alternative for the United States is to restrain the 'free' trading system of the past and move to a system of BALANCED TRADE [hereafter BT].
BALANCED TRADE - THE ENDGAME
BT is a simple concept which says that a country should import only as much as it exports so that trade and money flows are balanced. A country can balance its trade either on a trading partner basis in which total money flows between two countries are equalized or it can balance the overall trade and money flows so that a trade deficit with one country is balanced by a trade surplus with another country. A discussion of how BT will create jobs and protect the environment follows.
Balanced Trade (BT) considers the nation/state as the crucial decision maker for economic policies. Within a nation/state, BT recommends a free market economy together with individual citizens' political freedom as the proven means of creating wealth and jobs. Note that under this definition entrepreneurial enterprises may be owned by individuals, corporations or government bodies so long as each such enterprise is subject to the discipline of the market.
BT recognizes that the national government must provide the infrastructure for a free market to be effective and that the government has the right to regulate entrepreneurial firms in return. Such regulations reflect the culture of the country and provide for business opportunities within the culture. Ideally such regulation provides for high worker incomes, environmental protection, subjecting all firms, whether publicly or privately owned, to the rigors of the market place, effective fiscal and monetary policies which control inflation, and so forth. The national government has the power to regulate the internal free market to reduce or eliminate environmental degradation. Thus, BT has the capacity to maximize job creation in every country while limiting environmental damage. Some will debate that national governments will do a better job of protecting the environment and that international regulation is required; it is an open question.
Currently, a large part of most governments' national trade policies results from business interests lobbying. Every country has huge lists of products which may be imported, products which may not be imported and how much tax must be paid on imported goods. When domestic manufacturers worry about foreign competition, the taxes on competing products are high and the restrictions are onerous. But, when powerful business interests make money from imports the taxes on imports are low and the restrictions are easily managed.
OTHER TRADE THEORIES
Several economic theories about the proper role of government in managing trade relations have been developed over the centuries. Here is an introduction to some of those theories:
AUTARCHY: No trade. Autarchic governments attempt to eliminate all imports and exports, forcing their subjects to live with whatever the local economy can provide. These governments apparently believe that all other cultures are so evil or corrupt that any contact will harm their people. No responsible government engages in this practice today because the benefits of trade are so apparent. Recently, North Korea and Albania came close.
MERCANTILISM: Trade for national advantage. Mercantilists believe that the world has a finite store of wealth; therefore, when one country gets more, other countries have less. Mercantilists restrict imports and encourage or subsidize exports as a conscious policy to make their citizens better off. Some Asian countries use this policy to good effect in expanding their wealth by expanding exports and curtailing imports. Japan is an example of a country that has taken this policy too far - now its export surplus has raised the value of its currency so high that much of its labor is priced out of the world market. Many developing countries use this practice to secure good markets for their exports while protecting their market from foreign imports.
PROTECTIONISM: Protectionists restrict or tax imports to benefit domestic manufacturers and keep as many jobs at home as possible. Protectionists believe that the benefits from keeping jobs at home outweigh any loss of consumer surplus resulting from higher prices after tariffs. Exports are ignored by protectionist governments as are imports for which there is no domestic competition. Although rarely used as a stand alone policy, protectionism is frequently used as an accusation by those promoting free trade access to foreign markets for their own companies.
STRATEGIC TRADE: This policy requires or encourages domestic companies to make goods needed by the military instead of relying on foreign companies for strategic goods. Also, this policy seeks industries that will grow in the future and provides protection and encouragement to companies in those industries in the home market. For example, some argue that the United States' space program is a method of helping the aerospace industry by providing government funded R & D for new products.
FAIR TRADE: This is a new movement that tries to provide more of the profits from trading directly to the producers in third world countries by using consumer preferences for helping people and by eliminating the middlemen from the trade process: for example, grocery wholesalers in Europe buy fruit directly from growers in Central America, eliminating profits to the large, multi-national trading companies. ("Free Trade vs. Fair Trade", Global Exchange, 2017 Mission Street, Room 303, San Francisco, CA 94110; (415)255-7296) Consumers appear to prefer fruit labelled as coming from a Fair Trade system. This is a laudable idea and will help those producers who benefit from it; unfortunately, it requires so much entrepreneurial effort from the participants that it is unlikely to become a serious, long-term threat to large trading companies except in some limited markets. Further, these efforts rely on the private sector for implementation. Government policies can do little more than remove barriers to their implementation in a free market economy.
FREE TRADE: No restrictions on trade. Free Traders say that unrestricted market forces will create the most good for the most people by directing resources to the most efficient countries. To achieve worldwide efficiency, trade must be conducted without regard to national concerns; therefore any temporary imbalance in a country's foreign exchange settlements or domestic living standards is without consequence. Free Traders also believe that any action to interfere with free trade will result in a "trade war", wherein a country's trading partners will enact retaliatory laws to eliminate any benefit the initiating country receives from a protectionist policy.
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