Leaders of 34 American countries are meeting this weekend in Quebec City at the Summit of the Americas to discuss the establishment of a free trade zone extending from Canada to Chile. A Free Trade Area of the Americas (FTAA) is a top priority of the Bush administration, and would encompass 800 million producers and consumers in a market of $12 trillion in goods and services.
Since the implementation of NAFTA in 1994, trade between the US and both its neighbors–Canada and Mexico–doubled from $330 billion to $660 billion. Under a free market extending from pole to pole, we can reasonably expect the trade between the US and the remaining American countries to increase from the current $130 billion to about $520 billion in only 12 years. Would this huge increase in trade be good or bad for the US and for the other American countries?
If we keep in mind that trade only happens when both parties engaging in it benefit from the deal, it becomes obvious that the more trade there is, the more people will benefit from it. To extend free trade over a larger area would increase the size of the market and therefore augment the choices of sellers and buyers. In other words, there would be more people to sell to, and more people to buy from. Sellers would be able to reach new customers for their products and expand their businesses, while buyers would be able to find new suppliers and expand their range of choices. As tariff barriers came down, producers and consumers would get access to cheaper goods and save themselves plenty of money.
Let’s take Brazil’s current 35% tariff on telecommunications equipment as an example. If the tariff were eliminated, US telecom businesses would gain a multibillion market to place their products, and Brazilian consumers would gain access to much cheaper equipment. Likewise, if the US 50% tariff on Brazilian orange juice were to go, US consumers would pay $4 instead of $6 for every gallon of orange juice they drink. The same would happen if the US dropped its tariffs for other products, like steel from Brazil, wine and lumber from Chile, shoes and handbags from Argentina, zinc from Peru, and so on. Exporters to the US would increase their sales, and US consumers would gain access to cheaper goods currently unavailable to them.
To be sure, not everyone would benefit from free trade. Industries that are uncompetitive by reason of their high production costs would have to adapt, transfer their businesses elsewhere, or shut down. This is why a small transitional period from protectionism to free trade is needed: to allow industries that have been operating under the current system to adjust or to plan their deactivation.
It makes no sense, however, to keep protecting a few thousand jobs in a given sector, like in Florida’s orange industry, at the expense of millions of Americans who consume orange juice. Likewise, it is hardly reasonable to keep protecting the American steel industry at the expense of all other American industries which would stand to benefit enormously from lower steel prices from abroad, like auto makers and construction companies. The same reasoning holds true for all other products subject to tariffs, which are kept from the American public to protect a few uncompetitive American industries.
The value of free trade is much deeper, however, than the economic benefits it necessarily brings in the short-term to most, and in the long-term to all that participate in it. The fundamental reason why free trade is valuable and good is that it is essential to human life. Since no single individual can produce all the different goods he needs to maintain his life and achieve his happiness, all individuals need to have the freedom to acquire what they want by means of trade with others.
Free trade is a form of human freedom: it is the freedom of individuals to voluntarily exchange what they own, without coercion or legal impediments. To limit an individual’s market by law is to limit his freedom to trade and therefore his ability to live. This is precisely what happens when you are forced to spend your hard-earned money on tariffs imposed on countless products, from orange juice to cars, while you could be spending it on a better health insurance or on a richer retirement plan for yourself. The principle is simple: because tariffs make things more costly to you, you have less money to sustain and enjoy your life. So getting rid of tariffs will have the effect of increasing your ability to live and to be happy.
The establishment of the Free Trade Area of the Americas would benefit us all. It would bring us freedom and savings, and the sooner it takes effect, the better off we will be.
Editor’s Note: CM’s editors have yet to examine the actual FTAA agreement,. We support free-trade in principle, but are weary of non-trade legislation that may be “smuggled into” the free-trade agreement.