Tuesday, March 17, 2009

And So Begin the Trade Wars...

The Obama administration is taking directions straight from the playbook, "How to Turn a Recession Into a Depression." It was written about 80 years ago and has recently resurfaced at the White House. Step one is protectionism.

The U.S. fired the first shot, rescinding the ability of Mexican truckers to operate here. The retaliatory strike was received yesterday - higher tariffs on American goods exported down South. The result is that everyone loses.

There is no more universally accepted concept in economics than the benefits of free trade (and, of course, the harmful effects of protectionism). Though there might be some isolated beneficiaries of a protectionist agenda, both economies are worse off. Resources are distributed less efficiently, and perhaps more importantly, consumers pay more for goods. Real wages go down. Yes, the poor are generally hurt most by barriers to free trade.

The United States should be moving in the opposite direction. We need more free trade, not less. Congress has already inexplicably stalled free trade agreements, such as the one with Colombia. What should be done is a unilateral free trade agreement, whereby the United States assumes the role of leader of the free (market) world and drops all of its barriers to free trade.

While protectionism provides a siren song, it is free trade that promotes economic growth and job creation. It is free trade that benefits consumers and increases real wages. A vociferous free trade policy will be enormously helpful in facilitating this economy out of recession.

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