“Free Trade” Deals Are Oxymoronic and Harmful To the Economy

The other night, I was heavy in thought as I began pondering the Trans-Pacific Partnership Agreement (TPP). Gary Johnson and a number of his supporters say they support TPP because it advances “free trade.” So I began to think about this more from an economic and philosophical perspective.

To begin my thought process, I asked myself what trade was. Trade is the exchange of goods and services. Further more, I realized that trade is not free, and for an interaction to be considered trade, it must be voluntary. If I want to trade with Joe, but Bob lives between us, we have no right to pass through Bob’s property without his consent. However, Bob would have the incentive to set a fee for us to use his land to trade, so that he may profit.

So there is a cost for trade. But should Bob be coerced into letting Joe and I use his land to trade, it is no longer voluntary, therefore it is no longer trade. Coercing Bob into letting us trade also interferes with market forces. There would be an incentive for landowners to allow people to use their land to trade, knowing they would accrue a profit from doing so. Therefore, there is a marketable demand for allowing people to get together to trade.

The Microeconomic Impact of Trade Deals

If Bob does not want to let Joe and I pass through his land to trade, it now becomes profitable for our neighbor Jack to let us pass through his land for a small fee instead. When Bob sees the opportunity cost he gave up for initially telling us to trade elsewhere, Bob may eventually change his mind and undercut Jack’s prices. And our neighbor John may end up wanting to let us pass through his land for free, so long as he can pass through our land as well.

If the state had intervened and coerced Bob into letting us pass through his property to trade, none of this innovation would have happened, and our genuine consumer demand would have been destroyed. Because of this, resources are misallocated, Jack and John’s potential profits are destroyed, and economic bubbles are created. Additionally, Bob’s property rights would have been violated, since no one has the right to dictate what he must do with his land.

When the state steps in and steals land from people to use as a common means for transportation and trade, this heavily interferes with market indicators, and violates people’s rights. Trade is never free, and has a market of its own. But because of the government’s interventions, we fail to see this.

The Macroeconomic Impact of Trade Deals

Understanding trade from a microeconomic level is imperative, if we want to understand how trade deals will affect the economy on a macro level. If compelling a single landowner to allow two individuals to trade is damaging to the economy, what would happen if states were compelled to trade?

Let’s say that New Jersey and Ohio wanted to trade, but Pennsylvania didn’t want to let them. Should the Federal Government coerce Pennsylvania into allowing the two states to trade? Advocates of free trade deals would say yes, and would argue that Pennsylvania is harming the economy. But by coercing Pennsylvania into allowing trade, they would actually be the ones harming the national economy.

If Pennsylvania said no to trade, it would then become profitable for West Virginia and Maryland to let Ohio and New Jersey trade. Pennsylvania would see the opportunity cost it gave up, and would then be inclined to allow trade, and innovate its services so that New Jersey and Ohio choose to go through their state instead of West Virginia and Maryland.

To force Pennsylvania to allow Ohio and New Jersey to trade is to centrally plan the economy. And as we know, central planning does not work, since interfering with the signals people depend upon for accurate economic planning suppresses naturally arising prices, and supplants it with artificial ones.

The Impact of Trade Deals on the Global Economy

Let’s take this logic one step further, to see what effect a trade deal would have over the global economy. Gary Johnson says he supports TPP because it advances free trade. Meanwhile, Ron Paul warns us that it comes at the expense of an illegal transfer of power, which takes regulatory power away from the US Federal Government and passes it off to global governments and corporations. If the United Nations and WTO compel nations to trade against their will, how can this be a good thing?

If interfering with market indicators on the micro level damages the economy and violates people’s rights, how is this any different on the macro level? If central planning doesn’t work for a state, why will it work for a nation? If it doesn’t work for a nation, why will it work for the entire world?

Supporters of free trade deals say it will work, but the principles of economics tell us otherwise. Central planning has absolutely nothing to do with trade, and proponents of deals such as TPP should stop branding it as “free trade.”

Conclusion

Free trade deals are entirely oxymoronic. They are passed under the guise of boosting the global economy, but since they destroy market indicators, they will actually destroy the economy. Resources will be severely misallocated, and economic bubbles of colossal proportions will be inflated to the point of no return.

As long as governments exist, decision-making should be decentralized, and steer away from the trend of centralization, instead of towards it, as these trade deals do. Centralization takes power away from the individual, while decentralization restores it. The economy will prosper most when individuals are able to make decisions for themselves, free of coercion. Until we get to a free society, the economy will prosper most when nations are able to make decisions for themselves, free of coercion from the United Nations and WTO.

As Tony Canzoneri states in his article Radical Decentralization: The Only Sane Strategy For The Libertarian Movement, “Those of us from the Rothbardian and Hoppean tradition believe in private property rights as absolute and supreme in a free society. So what better step towards privatizing the functions of government than to reverse the trend of centralization so that governments are subject to competition, and there are more choices available for all of us diverse people?”