Too Much War — Not Enough Trade

Thursday, 12 Sep 2013 07:53 AM

By Neal Asbury

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In my book, Conscientious Equity, I discuss the fact that when nations have free trade agreements with each other, they have historically not gone to war. Once the road for negotiations is open to trade, it remains open for other serious considerations.

Equally important is that free trade agreements benefit not only businesses, but also a country's entire population. Global trade leads to economic freedom, which helps address poverty and minimize corruption.

So it was with great interest that I found a kindred spirit in Fred Smith, director of the Center for Advancing Capitalism at the Competitive Enterprise Institute. In an article for Forbes, he noted:

"The announcement of a possible free trade agreement between the world's two largest economies — the United States and the European Union — is extremely important. Free trade and the competitive globalization it has produced have done more to lift hundreds of millions out of poverty than all the aid programs of the last decades. Thus, the proposed U.S.-EU trade deal presents a great opportunity to boost global economic growth."

He also adroitly addressed the idea that free trade agreements, when negotiated by politicians, "can also generate a political backlash from established producers who fear increased competition and are thus motivated to defend the status quo through politics.
Too often, this leads trade negotiations to devolve into a tit-for-tat exchange of one protectionist measure for another that smacks of mercantilism. And that problem is exacerbated when economic and ideological interests take advantage of this stand-off negotiating approach to advance their narrow interests."

Protectionism is the killer of global enterprise. When high tariffs are imposed on goods and services, it raises prices, diminishes competition, leads to corruption and punishes the entrepreneurs who risk everything to compete in the global marketplace.

The United States recently backtracked on a prime example of protectionism by approving the sale of leading U.S. pork processor Smithfield to China's Shuanghui, despite pressure from U.S. politicians who opposed the deal.

Doug Young, a journalist and professor at Fudan University in China, noted in his blog for the South China Morning Post, "Approval of the deal sends an important message that the U.S. wants to promote fair and free trade with China, and won't play the kinds of political tit-for-tat games that often happen during trade disputes."

While we don't have a free trade agreement with China, this kind of outcome can keep an issue from spinning out of control.

Things really spun out of control in 1807, when the U.S. stopped trading with Britain. This led to the War of 1812. Without the American market, Britain's inventory of goods ballooned. Meanwhile, without British competition, American manufacturers became complacent and produced inferior goods that were overpriced.

What happens to a country when it is at war and trade stops? Take a look at Libya, where the prime minister is facing increased calls for his ouster as strikes by government employees at oil export terminals cost the North African country more than $5 billion.

Instead of bombing other countries, maybe the United States should spend more effort building trade relations. As late as 2011, even with all the problems between the United States and Libya, two-way trade topped $2.7 billion. It seems to me this is a much better form of diplomacy than firing a bunch of cruise missiles.

What happened to President Obama's pledge during his State of the Union address to double exports by 2015? It seems like a distant memory.

We are in danger of moving toward isolationism, which will punish U.S. entrepreneurs that need new markets.

Now is not the time to retreat politically or economically.

© 2014 Moneynews. All rights reserved.

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