Recently Robert Fulford was rightfully lamenting in a National Post column that after a quarter century since the United States-Canada Free Trade Agreement was ratified, the trade between the two countries is anything but free.

According to Fulford, only government procurement, a few other processes, and financial services were made more convenient with the so called Free Trade Agreement, and everything else remained as unfree as before. The usual culprits for such a sorry state are typically considered to be higher costs (due to higher wages, longer transportation distances, interprovincial tariffs and other taxes, etc.) and lower productivity in Canada. But after discovering that Halls cough drops—made in Canada—cost almost twice as much in Canada ($2.87) than in the U.S. ($1.47), Fulford dismissed all the typical explanations as insufficient and pointed his finger at “interest groups, lobbyists, politicians and bureaucrats” who like the “unfair” trade policy and maintain it decade after decade, while the rest of us are helpless to do anything about it.

While it is true that interest groups and lobbyists, such as businesses wanting government protection against foreign competition or trade unionists wanting government protection of jobs, influence the perpetuation of unfree trade. And politicians and bureaucrats who want to maintain their positions also help continue the status quo of protectionism. However, they are not the fundamental cause of unfree trade, and the rest of us are not as helpless when it comes to influencing freedom to trade as Robert Fulford suggests.
The opposition to free trade stems from the mistaken idea that it is contrary to the self-interest of the citizens of a country (or a state or a province). In other words, the opponents of free trade fail to grasp the principle of freedom, which includes the freedom of trade, as essential to a person’s self-interest. As an example, the Founding Fathers of America were opposed to taxation but favored tariffs—another form of tax, failing to see them as contradicting individual rights they otherwise promoted. This mistaken logic has perpetuated itself, not only in America, but most other countries in the world. Such thinking fails to integrate self-interest and freedom.

One the most significant modern-day example demonstrating the harmful effects of protectionism on self-interest is the softwood lumber dispute between the United States and Canada. The Canadian government subsidizes and regulates the country’s softwood lumber industry, and the American government counters by imposing a tariff on Canadian softwood lumber imports because of the unfair advantage of the subsidized Canadian producers. If the Canadian and American governments refrained from interfering with the softwood lumber industry and adhered to the principle of free trade, allowing the market to determine prices, the producers in both countries would have to increase their efficiency and productivity in order to compete.

If free trade prevailed, production of softwood lumber and all other goods would take place where it could be done most efficiently, at the lowest cost. This would mean companies would specialize in providing goods and services where they have a comparative advantage, regardless in which country they are located. This would mean intense competition, innovation, and maximum wealth creation, translating into economic growth, job opportunities, lower prices and better quality of products and services. In other words, free trade would serve the interests of everyone: producers, employees, and consumers.

The idea of some kind of collective national interest is mistaken: having products manufactured in the United States or in Canada is not inherently in the interest of Americans or Canadians; having products manufactured wherever it can be done most efficiently—provided the markets are free—is. We are helpless against anti-free trade activists, lobbyists, politicians, and bureaucrats only when we fall for their argument that protectionism is in our interest. If we passively accept the idea that our freedom, including freedom to trade, should be limited and willingly pay prices twice as high as free market prices, we can only blame ourselves. Instead, we should promote the principle of free trade as essential to everyone’s self-interest whenever and wherever we can.

4 COMMENTS

  1. The push for trade barriers is usually pitched to a collective good, such as stability of the economy, employment, and vague nationalism (dependence on furriners being a favorite scare tactic).

    It is hypocritical of a country that lives on exports, as Canada does, to try to manipulate dealings to be in one direction. (Which of course is not “trade” in the plain language meaning of the word.)

    Inevitably someone is favoured, because they convince politicians they are essential to the economy. Job loss numbers are bandied about – once again re BC Ferries buying ships elsewhere, ignoring the jobs lost due to high prices of products and services needed to run businesses here (including manufacturing) as a result of import tariffs. The purchasing ability of individuals is ignored – higher costs for some things leaves less money to purchase others, thus protectionism for the favoured few hurts other suppliers.

    The difference can be indirect – I suspect much of the reason for the big difference in the price of Hall’s cough drops is less competition because of protectionism. Many factors affect costs, including effectiveness of distribution, which seems poorly set up within Canada – and of course the border impedes quick movement of goods. (WalMart in the US is renowned for moving goods quickly.)

    • Thanks, Keith, for your observations! As for the effectiveness of distribution in Canada–that is also affected by the lack of competition. Why is Wal-Mart effective in its logistics and transportation? It has to compete globally with others who are also pursuing effectiveness.

  2. After the major revision of the Canada-US trade treaty circa 1989, one person observed that perhaps now we could get free trade between provinces.

    The topic is hot again, with the premiers of AB-BC-SK pointing out that the new treaty with Europe would require open procurement with provinces, yet within Canada that is not required. (Reference a letter from those premiers to others. In the news as there is a meeting of those provinces and MB, YT, NWT, and Nanavut, and it is in a northern province. (In Iqaluit, fka Frobisher Bay.)

    There has been substantive improvement between AB and BC in the past decade or so, recent examples include:
    http://www.timescolonist.com/opinion/columnists/robert-roach-three-premiers-got-together-and-got-it-right-1.913135
    http://www.timescolonist.com/news/national/premiers-act-to-make-moving-within-western-canada-easier-1.898424

    and http://www.timescolonist.com/time-to-break-down-barriers-to-trade-within-canada-industry-minister-1.320717

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