No trade policies please
Published by Yazad Jal April 11th, 2005 in EconomicsThe Express gets it right in its editorial today on trade policy.
When the state trumpets about “targets” for exports, it is an embarrassing reflection of a sixties mindset. Modern economies no longer set “targets” for exports. Exports are the outcome of a market economy, and not something that a government controls.
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We no longer need to do “export promotion”. India should export out of the genuine strengths of its firms, not owing to subsidies paid for by the tax payer. … Subsidising exports merely means that foreign consumers are being funded by the Indian taxpayer. The pressures of fighting in world markets are supposed to create more efficient firms. Instead, a system of export subsidies involves perpetuating inefficient firms.
And why stop at exports? Import policies too are an anachronism. Companies should be able to import and export without restrictions or helping hands. Trade policy statements harp on the old mercantilist ideas of “more exports and less imports” which have been discredited two centuries back by Adam Smith.
See also this article on a report that contrasts free trade and managed trade:
http://www.adamsmith.org/blog/archives/001180.php
The report (PDF file linked in the article) specifically mentions India as an example of how not to do trade policy.
Trade policy should be set by the people doing the trading, not by their governments.
it must be understood that diplomacy is based on RECIPROCITY but trade is not. for example, i run a bar that sells non-veg food. next door to me is the MASTER TAILOR who is a vegetarian teetotaller. for the last 20 years that i have known him, he has never paid me any custom. should i not get my new suit stitched from him? or should i go to the DRUNKEN tailor, the last to leave my bar every night, whose hands shake like hell? trade is between INDIVIDUALS: it is MORAL, it is JUST, it is VOLUNTARY and it is MUTUALLY BENEFICIAL. since it occurs all the time, “CONTINUOUS COMPETITION”, reciprocity is meaningless. that is why we don’t need the WTO; we need UNILATERAL FREE TRADE.
frederic bastiat was the only economist in history, before me, to destroy the concept of RECIPROCITY in matters related to trade. if we allow ministers and diplomats to handle foreign trade, we can say goodbye to prosperity: enjoying chilean red wine with french cheese. for example, france does not allow in alfonso mangoes. should we not eat french cheese?
The suggestion here is that the Government must get out of trade altogether, or practice the much misused term - laissez-fairre. That would work in a different world. Trade has risen in importance in the world to a level where it is linked to national security. If Kuwait did not have something important to sell to the US, the US would not have shed blood for it. Europe, Japan and East Asia were built up economically as a conscious political decision on the parts of their Govts as well as the US. They realized that economic development via trade was imperative for building up these nations - for ensuring their security.