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A global free market economy: The real goal of President Trump’s tariffs

Written By | May 14, 2019
global free trade, tariffs, President Trump

WASHINGTON.  President Trump’s tariffs and his goal of a truly global free market economy remain hot, controversial topics in most markets around the world. Most economists today say that free markets produce the greatest amount of output, the lowest price for goods and services, the greatest efficiency and the highest quality. Free markets  innovate, respond to the needs of the consumer and result in higher incomes for all workers. Although some workers get considerably higher income than others.

To be fair, some economists disagree with this general consensus. In a national or global free market, workers are paid according to their individual contribution. But often, large income differences arise between the management and the average employee.  This leads to severe income inequality. These dissenting economists argue that a goal of economic policy should be to regulate markets to some extent to reduce income inequality. They believe this kind of regulation improves economic and social welfare. This, they say, is the goal of an economy.

Free markets produce the best results.

Entirely free markets seldom occur. When they do, the results are always the same. Namely, more output, lower prices, more efficiency and highest quality. One example we might cite: the market for Lasik eye surgery. This is an elective procedure that repairs human eyesight to the point where corrective lenses are no longer needed.

Insurance companies will not pay for elective procedures like this. So Lasik came into existence simply as a free market.  Both eye doctors and consumers were free to enter the market and seek a price. The result: After only a few years of this procedure’s availability, its price plummeted from roughly $10,000 to the under-$2,000 range. Even better, the free market  competition led to improvements in the speed and accuracy of the procedure.

Read also: More individual freedom and responsibility will make America great again

Distorting the free market.

In the global market, each country sets its own economic policies. In many instances, particularly with regard to its large international trading partners, governments will often impose import quotas and tariffs. These actions distort the price of goods as well as market quantities (supply). As such, these market are no longer free markets. Worse, they impede progress toward achieving a global free market economy.

Another distortion is that highly populated, low wage countries like China and India have been able to attract US production.  While the low price was viewed as positive, US manufacturers became dependent on foreign production.  And there were not many viable options.

President Trump views the issue of tariffs, quotas and the concentration of production, particularly in China and India, as barriers to the free market here and around the world. Further, he sees that virtually every current trade deal involving the US is slanted to favor of our international trading partners, to the detriment of US companies and workers. Existing trade deals included lopsided tariffs routinely assessed against US goods. For example, China and countries in Europe routinely charge US auto manufacturers a 10% to 25% tariff on American made cars. Meanwhile, we charge them duties as low as 2 /1/2% on cars they produce to sell in this country.

Trump’s long-term goal is to achieve a free market across the globe.

Trump began his fundamental transformation of free trade by first bringing every one of our trading partners to the bargaining table to re-negotiate every existing deal. Since every foreign trading partner proved reluctant to re-negotiate exisint deals that had proved so favorable to them, businessperson Trump needed to create a sense of urgency as he re-opened negotiations. He caught the attention of America’s trading partners by slapping crippling tariffs on goods they exported to the United States.

Already Mexico, Canada and South Korea have signed new trade deals. Japan and the European Union have had discussions with the stated goal of achieving a no tariff policy. Even long-intransigent India is talking with the US about reducing tariffs.

Once all these countries sign new agreements with the US, trade will begin to flow more freely. Worldwide, new markets for US goods and services will arise. Our longstanding annual trade imbalance with other countries will shrink, or, perhaps even disappear.

Free markets lead to efficiency and fair labor and production costs.

The last barrier to a free market is to encourage other countries to encourage low wage production or highly efficient automated production. One consequence of the tariff regime Trump has placed on China is that other countries, such as  Vietnam and Thailand are now attracting some US companies to manufacture goods there.

Meanwhile, here in the US, highly automated and efficient robots have been incorporated into production lines. As a result, these innovations are already leading to more competition on the supply side and moving us closer to a truly free market economy. That’s really what President Trump wants as an end result of his current internatinoal trade negotiations.

Never has the US elected a highly successful businessperson without political experience as this country’s president. Never has an American president viewed the global economy the way that Trump views it. Although the US is experiencing some short term pain as Trump deploys tariffs to pressure reluctant trading partners to the bargaining table, the long term gain for the US and world economies will be well worth the currently turbulent journey.

The end result, should Trump succeed, would be a truly global free market, admittedly with some imperfections. Such a market can produce more goods and services, keep consumer prices as low as possible and improve the overall quality of its products. Incomes begin once again to rise. And less than developed countries will find real opportunites for growth. This kind of robust free market economy ultimately benefits everyone.

— Headline image: Cartoon by Branco. Reproduced with permission to fit format, and by arrangement with Comically Incorrect.


Michael Busler

Michael Busler, Ph.D. is a public policy analyst and a Professor of Finance at Stockton University where he teaches undergraduate and graduate courses in Finance and Economics. He has written Op-ed columns in major newspapers for more than 35 years.