A common refrain heard from political figures on both the left and the right goes something like this:  "I'm not for free trade, I'm for fair trade."  The statement is typically followed by some appeal for greater government interference in the marketplace, usually through increased trade tariffs against the perceived offender du jour.  The implication is that


Often the perceived unfairness is the result of the so-called "trade deficit" the United States has; that is, we buy more foreign-made imported goods than we export.  Another area of perceived unfairness in trade matters concerns the tariffs charged by countries on imported goods compared with the tariffs we charge those same countries on goods we import.  Often tied in with these arguments is the claim that such trade-related "imbalances" are resulting in a net loss of American jobs, particularly in manufacturing.

The trade deficit angle ignores a simple fact:  the United States only runs a trade surplus in years of extreme economic strife.  There was a 10-year period in which the US ran a trade surplus in 9 of those years:  the 1930s, during the Great Depression.  A trade deficit is the rule, not the exception, and it signifies a strong American economy — we have the money to buy things, so we do.

The import/export tariff angle tends to be framed wrongly as well.  A tariff is a tax.  It is levied by the government on goods imported into a particular country, and is ultimately paid by consumers in the form of higher prices.  Therefore, when a government raises tariffs on imported goods and services, the government is raising prices on its citizens both directly and indirectly — directly in the prices of the goods and services themselves, and indirectly in the prices of other goods and services produced by businesses who use the higher-priced imported goods.  An increased tariff on gasoline, for example, would raise the price of any item that is transported on a truck.

There's also another indirect cost of import tariffs:  lack of competition.  A tariff on, say, imported steel raises the cost of foreign-made steel relative to steel produced by an American company.  There is then less incentive for the American steel company to innovate or improve efficiency or quality; not only are American consumers then met with higher costs, but also with a lower quality product.

Finally is the jobs argument.  Supposedly unfair trade practices by other countries are resulting in the loss of American jobs.  However, this ignores several important facts as well.  First of all, manufacturing jobs are decreasing around the world.  The cause:  productivity increases due to technological innovation — it simply takes fewer workers to make a given product than it did 50 years ago.  Increased productivity is a good thing — more efficient production of goods and services provides more resources to improve other parts of our economy and lifestyle.  Yes, 50 years ago we had a greater percentage of Americans employed by factories than we do today; is anyone seriously suggesting we should go back to a 1950s-style way of life?  We have more choices today to buy better products at less expensive prices.  That sounds like progress, not a problem.

If American products are not able to compete on the world market, there are several potential reasons.  If the products aren't of a high enough quality, then it is the job of the companies producing those products to increase quality and/or decrease the price to meet the market demand.  If the products are too expensive due to oppressive regulation or taxation by the United States government, then we should act either to improve the inequitable situation or else decide that the relevant taxes and regulations are worthwhile to us as a nation and should be kept, uncompetitiveness be damned. 

If it is oppressive tariffs by another country's government causing American products to be uncompetitive in that country's market, then the answer is a little tougher.  The first  impulse is to raise our own tariffs in retaliation.  However, we've already established that the effect of high tariffs is a net negative on the consumer for several reasons.  So retaliatory tariffs is effectively getting back at a government for screwing its own citizens by turning around and having our government screw our own citizens.  Does that make sense?

I consider "fair trade" to be a transaction in which both seller and buyer participated freely, without coercion or fraud.  It is no business of the government whether I buy a Mercedes or a Ford, and if Ford wants my business they need to provide a product I want to buy at a price I deem to be "fair".  The government's role is to protect private property rights, enforce contracts, and protect against fraud or coercion.  As long as they are doing that, then I am engaging in "fair trade".