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Free Trade

THE FREE TRADE PLANK: COMPETITIVE STUPIDITY
(published in The Vancouver Sun, June 19, 1986)

by Marco den Ouden

... who edits Wings of Freedom,
the newsletter of the Libertarian Party of Canada.

Frederic Bastiat, the great economic pamphleteer and champion of free trade, tells a story about  Robinson Crusoe in his classic Economic Sophisms.

Crusoe was about to cut down a tree to make a board when he noticed a plank cast up on the beach. A lucky break, one would think. But Crusoe squelched his initial enthusiasm and reasoned:

"If I go to get that plank it will cost me only the exertion of carrying it, and the time needed to go down to the beach and climb back up the cliff.

"But if I make a plank with my axe, first of all I shall assuring myself of two weeks labor; then, my axe will become dull, which will provide me with the job of sharpening it; and I shall consume my provisions, making a third source of employment, since I shall have to replace them.

"Now, labor is wealth. It is clear that I shall only be hurting my own interests if I go down to the beach to pick up that piece of driftwood. It is vital for me to protect my personal labor, and, now that I think of it, I can even create additional labor for myself by going down and kicking that plank back into the sea!"

Bastiat then explains that that absurd line of reasoning is exactly the one followed by nations with protectionist policies. Such a nation "kicks back the plank that is offered it in exchange for a little labor, in order to give itself more labor."

There is more than little irony in the fact that the United States proceeded to scuttle U.S.-Canadian free trade talks in kicking cheap Canadian planks back into the sea by putting a 35 per cent tariff on Canadian shakes ands shingles.

The rationale behind this move is the charge that Canada unfairly subsidizes its lumber industry through low stumpage fees. Most forests are on crown land and Canadian forest companies pay their provincial governments a set fee for each tree logged. In contrast, the American forest companies bid competitively for the right to log government land.

If the Canadian system is unfair to anyone, it is not to the Americans, but to Canadian taxpayers, who have to pay higher taxes to make up for revenue the government could get for the crown's trees but doesn't. The Americans, far from being victims, are beneficiaries of Canadian government largesse to the forest companies.

The problem is that neither side in the trade talks understands what are the benefits of a free-trade area. Each sees free trade as beneficial only if it helps domestic industry.

The Americans fear their lumber industry is jeopardized by cheap Canadian imports. Canadian fruit growers and other agricultural producers worry lest their industry be harmed by cheap Yankee produce. But both sides want expanded markets for what they produce at lower cost. Both sides calculate whether their increased exports outweigh their increased imports.

In fact both sides are looking at the issue from the wrong perspective. Free trade is beneficial not because it provides greater opportunity for increased exports, but rather because it provides cheaper goods for domestic consumers. Labor is not wealth. Goods are.

But what of the threat to domestic industry presented by cheap foreign goods? Bastiat answers by postulating that Crusoe could devote the time saved by retrieving the free plank to doing something else. Crusoe, "with incredible blindness, confused labor with its result, the end with the means."

In the case of the United States, while it is true that a certain segment of its population may become temporarily unemployed as a result of an influx of cheap Canadian wood, it won't have any less wood available. "A little circumstance that makes all the difference in the world," as Bastiat puts it. And into the bargain, the U.S. will have additional labor to produce other goods and services.

Free trade is beneficial because it benefits consumers. Labor may be temporarily unemployed, but not at the cost of any real wealth. And in the long run wealth will be greatly increased because the labor saved by importing cheap goods will go to creating more wealth.

That the U.S. blundered in putting a tariff on our lumber ought not to alter Canada's stand. Compounding U.S. stupidity by throwing cheap U.S. computers and books into the sea only shows the Canadian government can be as stupid as the American.

The best position our government could take would be to unilaterally abolish all tariffs and restrictions on foreign goods. If foreigners (including Americans) want to hurt their own populations by depriving them of cheaper goods, let them. But let's not punish the Canadian consumer for American shortsightedness!

This article appeared as an Op-Ed piece in The Vancouver Sun on June 19, 1986. The original piece can be seen here.

 

Contents copyright Marco den Ouden       All Rights reserved
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