On The Importance of Free Trade in the 21st Century

Alexander Robak | Canada

In our current society, there exists perhaps no other economic problem greater than the continued hindrance of free trade and public choice by increasingly overreaching, bureaucratic, authoritarian states. Where private enterprises divided by political borders should be permitted to conduct business as usual, they are being continually oppressed by states who want nothing more than to interfere in a once-free market in the name of protectionism. Rather than attempting to support our local private enterprise by hindering the functioning of a free market, the state should allow the free market to operate as it naturally does in as many ways as possible, in order to increase competition and benefit the consumers. The longer that the people allow authoritarian state structures to hinder free trade with oppressive policies, the more the consumers will be affected.

One of the most prominent examples of the government hindrance of free trade in the Canadian economy would be the system currently in place known as “supply management.” Under this system, the federal government of Canada manages the production of egg and dairy products, as well as facilitates the sale of these products under fixed, but constantly increasing prices. This oppressive system came into being in 1972 under the rule of Pierre Elliott Trudeau with the passing of the Farm Product Agencies Act. This piece of legislation was created in order to protect Canadian dairy and egg farmers from American competition, as well as stimulate their success in the marketplace. In essence, Prime Minister Trudeau believed that this piece of legislation would bolster portions of the Canadian economy in the face of daunting American competition. In reality, this legislation benefitted less than 20,000 dairy and egg farmers while increasing prices for almost 37 million Canadian consumers. This policy is a prime example of government interfering in the functioning of a free market to bolster their protectionist system.

The supply management system currently operates through a series of quotas. The government of Canada issues quotas to dairy and egg farmers across the country, who are only permitted to produce an amount of product equal to that which the government allows. On top of this, the government puts quotas on American dairy and egg products, which make it impossible for them to be able to sell their products to a Canadian consumer base while being profitable. Through this policy, the government is able to keep the supply of these products to a minimum. Following the laws of supply and demand, when the supply of a product is low, yet the demand is high, the price will always be increasing, in order for producers to benefit off of a high demand. However, this is opposite to the functioning of a free market. The only reason this policy is in place is to protect the Canadian producers of these products from American competition. In reality, it has increased the prices of essential products for all Canadians. If the market of dairy and egg products were allowed to function without government interference in Canada, there would be far more competition in this sector from the south of our border. This competition would drive the prices of these essential products to a minimum, while also fairly giving Canadian consumers the power of choice. As it stands right now, the power of choice has been revoked from the Canadian consumer base. In addition to this travesty, with the loss of choice in this industry, the Canadian consumers are being forced to pay a premium on products that are absolutely essential. The only people that benefit from this policy are the producers of dairy and eggs in Canada, while the rest of the population is forced to suffer under the policies of a government that believes it is right to interfere in the functioning of a free economy.

Other than that which can be found under the supply management system, the government of Canada has made many other interferences on free trade through the use of tariffs against American imports into the country. Many of these tariffs have been in retaliation to the tariffs placed on Canadian aluminum and steel by President Donald Trump. Many analysts believe that the government of Canada has made up to $300 million off of these tariffs in this period alone. These retaliatory tariffs put in place by Prime Minister Justin Trudeau have only contributed to the problem and expanded the sectors in which the Canadian consumer base is economically oppressed. What happens when these tariffs are put in place, is that many of these products continue to be sold in other countries, despite the tariffs. However, in order to make up for the cost of tariffs, these products are sold at over-inflated prices. This forces the consumers to pay more than they usually would for the same products. In essence, the government is forcing consumers both at home and abroad to pay premium prices for products simply because they are not domestically made. It can be seen why this is not a good idea, and negatively impacts our economy. If consumers are forced to pay extra in one sector of the economy for products that they would normally buy, the average consumer has less disposable income that is available to be spent in more niche areas of the economy. This hurts the diversity of our economy in every possible way. The only reason that these tariffs exist is so that the federal government can make money off of the back of a market that it is attempting to function normally, despite government interference in their sector of the economy.

Recent negotiations of the North American Free Trade Agreement saw both the US and Mexico come away from the conference with a deal, despite the mountain of tariffs between the countries. However, Canada was left out of the agreement, due to Prime Minister Justin Trudeau’s massive demands in regards to tariffs on American products being sold in Canada. Many of these tariffs in question were put in place as retaliatory measures against American tariffs on Canadian aluminum and steel. In order to come to the agreement that is currently in place, Justin Trudeau was required to make many concessions to the United States. However, the United States did not have to make trade concessions. What resulted was a lopsided deal in which the United States benefited greatly, while Canadian imports into the United States are still hindered by a mass amount of tariffs. What this means is that it has become easier for American products to be sold in Canada, but it still remains just as hard for Canadian products to be sold in the United States. This begs the question: Is a bad trade deal better than no trade deal?

It can be concluded that not only do these tariffs negatively impact the consumers of both countries, but they also hurt producers that are attempting to sell their products in a national market other than their own. This goes not only for negotiations between the United States, Canada, and Mexico, but can be extended on a global scale. Every country places tariffs in order to counteract tariffs that negatively impact themselves. The problem comes with the fact that tariffs are beneficial to nobody but the government. Over 7 billion people in the world are being negatively impacted by tariffs on a daily basis. The proposed solution to the tariff problem is one of free trade, free markets, and distribution of goods and services on a global scale in relation to the demands of the market, rather than the demands of world governments.

In Friedrich A. Hayek’s 1944 magnum opus The Road To Serfdom, he addresses the problems created by government involvement in the economy. He believed that the economy should be left to those who are actively participating in it, such as consumers and producers, without any government interference whatsoever. This is due to the fact that consumers are better at consuming than the government is. Thus, consumer choice should be left to those who consume. On top of this, the government is ineffective at properly managing production. In the economy, improvement and innovation are able to come about through competition between private enterprises. The government is unable to bring about technological advancement with the effectiveness and efficiency that comes with private competition. He argues that both capitalist and socialist systems are responsible for the travesties perpetrated against the consumers through tariffs and taxes put in place by overreaching government. He concludes that the only way the consumers can have maximum benefit in the economy is through an elimination of all government interference in economic practices.

The only solution that adequately addresses the problems posed by mountains of tariffs in international trade is to abolish almost all tariffs, or in the very least reconsider and renegotiate existing tariffs. We must put an end to the protectionist tax reaping methods of the State so as not to continue negatively affecting both consumers and producers of all products, in all sectors of the economy. Continuing on this path of protectionism will only continue to hurt innocent consumers who wish to contribute to the global economy through the act of consumerism. Mounting tariffs raise the prices of goods and services for consumption. This effectively discourages consumer bases from purchasing goods and services that are essential to many people’s lives. Many times, this leads to consumers either searching for alternatives or going into the unregulated black market to get goods and services that are cheaper than their expensive, tariff-ridden counterparts. Neither of these options are in the interest of world governments, who wish to have consumers effectively contributing to their own economy. The only way to encourage consumption in the economy is through the lowering of prices. This comes about through an increase in competition in the marketplace, and an elimination of auxiliary costs for producers, such as tariffs.

With an abolition of all tariffs would come a completely free market, where consumers are responsible for deciding supply and demand based on collective action. In a free international market, consumers would have the maximum choice, at a minimum price. The only reason that a system of international trade such as this has not yet been implemented is due to the fact that governments have no way of making money off of this. It can be seen when put into black and white terms that the state is responsible for the abolition of free choice in the economy, and does little to no good while attempting to maintain their guise of “good intentions.”

The problems caused by state interference in the economy are not reformable by any means. So long as we allow the state to continue interfering in the practices that should be left up to consumers and producers alone, we will only continue to hurt the economic growth and innovation around the world. The only solution to the problem of tariffs and government intervention in the economy is an abolition of state power in the economy, and the formation of free markets, which are allowed to operate free from interference from outside sources such as the state.

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