The "Fair Trade" Myth


by Shyam J. Kamath

The siren song of managed "fair" trade is
once again in the air as the 1992 election
nears. Cries of "buy American" fill the
newspapers and TV news programs. Japan-bash-
ing is in; free trade is out.
  The common argument advanced in favor of
"fair" trade is that trade deficits (excesses of im-
ports over exports) cost American jobs. But this is
a myth. Over 15 million new jobs were added
between 1982 and 1989 as the U.S. ran up huge
trade deficits. And the majority of these jobs paid
rather well, contrary to the "McJobs" myth. Job
growth was mainly in those sectors that were large-
ly unprotected against foreign competition: com-
puters and data processing, telecommunications,
petroleum and chemicals, pharmaceuticals and
health-related areas, scientific and photographic
equipment, entertainment, leisure and recreation,
hospitality and tourism, and the service industries.
  Meanwhile, protectionist measures were failing
  to save American jobs. Quotas against Japanese
  autos (euphemistically called "voluntary" export
  restraints) imposed in the early 1980s didn't pre-
  vent the loss of over 200,000 jobs in the U.S. auto
  industry, and General Motors recently announced
  massive new layoffs. The record in steel, textiles,
  dairy products, shipping, and meat packing is
  much the same. These industries shrank while pro-
  tective tariffs and subsidies were lavished on them
  to save jobs.
  Another common myth about "fair" trade is
that Japan severely restricts imports. In fact,
Japan's formal and informal trade barriers are
lower than those in America and other industrial-
ized nations. For example, Japan's average tariff
on industrial products was 2.9 percent in 1987,
compared with 4.3 percent in the U.S. and 5.8
percent in the European Community. Nontariff
barriers in Japan such as quotas and licenses were
found by a World Bank study to be no more
significant than those in the United States.
  Japan was the world's third largest importer in
1990, taking in $235 billion worth of goods and ser-
vices. Imports have grown 85 percent since 1985.
In terms of imports per person, the average
Japanese spent $372 on American products in
1990 while the average American spent $357 on
Japanese products. During 1986-91, U.S. exports
rose by 91 percent, while Japan's exports grew by
only 17 percent. American exports to Japan were
especially strong during this period, doubling to
$46.1 billion by the end of 1990.
  In fact, it can be argued that the United States is
the unfair trader. James Bovard points out in The
Fair Trade Fraud (reviewed on page 282 of this
issue) that America has over 8,000 tariffs, 3,000
clothing and textile import quotas, and a variety of
quotas and other nontariff barriers for steel, autos,
sugar, dairy products, peanuts, cotton, beef,
machine tools and other industrial products. For
example, America limits imports of ice cream to
the equivalent of one teaspoon per person each
year, and foreign peanuts to two per person. Such
restrictions reduce competition, raise prices,
decrease variety, and cost American consumers
$80 billion per year, or $1,200 per family.
  The strongest argument against "fair" trade is
the existence of globally integrated multinational
corporations such as IBM, AT&T, and Procter &
Gamble, and the interdependence of the inhabi-
tants of our "global village." It is estimated that
over 40 percent of world trade is carried out by
more than 2,000 multinational corporations that
have no national identity and that produce and dis-
tribute through a globally integrated network.
Today, anyone wishing to "buy American" may
have to buy a car with a nameplate like Honda or
Mazda rather than Chevrolet, Dodge, or Ford.
  Logic and hard evidence dictate that we resist
the calls for "fair" trade if we wish to maintain
and enhance our standard of living in an interde-
pendent world. Free trade is still the best option
for promoting American prosperity. "Fair" trade
can only lead to an ever-escalating cycle of retal-
iation and counter-retaliation, putting the world
trading system at risk. Our future depends on
keeping our borders open and the goods and ser-
vices flowing.


Professor Kamath teaches economics at California
State University at Hayward