Saturday, July 6, 2013

Free Trade with China? Why haven’t we done this sooner?

After President Park Geun-hye’s official visit to China, it was reported that one of the things that President Park and Chinese President Xi Jinping discussed was the creation of a bilateral free trade agreement between Korea and China by 2015.

Predictably, though with perhaps less rabidness as existed during free trade negotiations with the United States, there were protests against this possible free trade agreement between the two countries as 3,200 protesters from across the country attended a mas rally in front of the BEXCO convention center in Busan. The go-to motto this time around seemed to be “Korea-China FTA is the death sentence to Korean farming.” That they said similar things during Korea-US FTA talks and Korea-EU FTA talks and that they still exist does not seem to have given them pause to think through their logic.


Personally, I believe very strongly in free trade and welcome a possible free trade agreement between Korea and China. As such, the following are the reasons that explain why I support the possible FTA with China (as well as with any other country in the world) and my rebuttals against anti-free trade arguments.

1) Free trade is beneficial to consumers

People who advocate for tariffs (or ‘protection’ as it is euphemistically called) are calling for restrictions on imports. Of course, they never openly admit that the basis of their argument is self-interest. They always claim some sort of altruistic motive such as the “general interest” or national security. But is it really in the general interest?

What about the consumers’ point of view, i.e. the majority of the population who do not work in the agriculture industry? Personally, I have a limited budget and I am always looking to cut costs where I can. If I can spend less money while buying the same amount of groceries, that’s certainly an opportunity that I would jump on. People can shout patriotic bromides all they want at the top of their lungs but that does not change the fact that when it comes to personal shopping habits, people will always spend their money in the most rational manner possible, as evidenced by the increased sale of imported beef, despite the earlier hubbub that surrounded it.

The fact of the matter is that “protectionism” is really nothing more than a dual attempt to exploit consumers AND to get consumers to allow themselves to be exploited willingly all in the name of "patriotism."

This is a graph that shows the level of imported beef from Australia and the United States that Koreans consumed from 2008 to 2013.  The blue line represents Australian beef and the red line represents American beef.  This graph was taken from a study that was conducted by the Korea International Trade Association

2) Free trade is morally superior because it places trust in individuals rather than government bureaucracy

One of the understated premises behind protectionism is that a small handful of bureaucrats can somehow fully understand and wisely legislate how millions upon millions of people ought to deal with one another. The following video will explain how that is beyond ludicrous better than I could ever explain.

It is morally questionable as to whether or not a select group of bureaucrats ought to make our choices for us. However, those moral questions are outweighed by the more practical question of whether such acts are beneficial or even possible. Short answer – it’s not.

3) Free trade eventually transcends economic exchange

It is a grave mistake to make the assumption that trade merely involves the exchange of goods and services and money. Such an assumption could not be further from the truth. When people trade with one another, personal relationships are made. All trade is built on trust. If people cannot trust one another to deliver on goods or money to seal trade deals, then trade would become impossible. Therefore, willing or not, once people enter into trade, personal relationships that are based on trust have to be built.

Through those relationships, more so than merely material goods and money, people and ideas inevitably follow through the same open doors. Besides the superficial cultural exchanges, it allows people to share information with one another. And what could be more valuable than information in the Information Age?

If Korea never established trade relations with the outside world and resorted to the old ideas of self-imposed isolationism of the Chosun Dynasty, it is not beyond imagination that today’s Korea would be that far removed from North Korea.


4) Free trade benefits the poor

Political rulers have the ability to create laws that protect their pampered lifestyles. The wealthy are protected by their wealth. They can choose to buy or rent lawmakers and if that’s not available, they can always move to where the grass is greener.

The poor, on the other hand, are always at the mercy of the laws and their own limited budgets. You can be sure that Chun Doo-hwan and other politicians will continue to enjoy the good life and that Korea’s wealthiest will never feel the humiliating sting of an overdrawn checking account while millions of middle to low income earners are made even more miserable in the name of defending an influential lobbying group.

Free trade gives the poor options. By being able to spend less on groceries or whatever else it is that they choose to buy, they can stretch their money to buy more goods and services, to send their children to college for just one more semester.

5) Exports vs. Imports

A great number of politicians appear to believe that exports are good while imports are bad. This is the result of a very poor grasp of economics or reality.

In regards to exports being better than imports, reality says otherwise. We cannot eat, wear, or enjoy the goods we export. Any wish to be able to do so is synonymous to wanting to have one’s cake and to eat it, too. What we are unable to enjoy that we export, however, we enjoy with imports. We eat fruits from the Philippines, wear Italian suits, use computer hardware from Thailand, and use raw minerals from China. Our gain from foreign trade is what we import. Exports are the price we pay to get imports. To summarize, without exports, there are no imports.

If we export more than we import, politicians like to call that a “positive balance of trade,” but that is a euphemism. When we sell the Chinese more than we buy from them, we will have more money – that is true. But what will we do with that money? We cannot eat it.  Simply because we have more money doesn’t change the fact that we have less goods now because we sold a lot of it to China. With less goods to buy domestically with more money to spend, that is the perfect recipe for inflation!

By insisting on having “a positive balance of trade,” we are sacrificing real wealth for the sake of merely feeling wealthy.

Surprisingly, not very tasty or nutritious.  Who would have thought?

6) Free trade fosters peace

Anyone opposed to free trade will be the first to tell you that free trade does not guarantee peace.  To make their point, they might bring up the fact that trade levels between Germany and the Soviet Union were high before Germany decided to invade Russia in 1941. And it is true that free trade does not guarantee peace. In fact, nothing guarantees peace.

However, free trade strengthens peace by raising the cost of war. As nations become more integrated and interdependent on one another through trade, governments, businesses, and individuals would be less inclined to support war as they realize that they have much to lose should trade be disrupted.

That is why despite the vicious rhetoric between Korea and China and Japan whenever election seasons come by, no one even fathoms to instigate a real shooting war. There is too much to lose once a real war erupts. What free trade does is that it further cements peace between nations that are not inclined to like one another.

People who have nothing to lose are liable to do some stupid things like starting wars and making movies like "Nothing to Lose."

What free trade does is that it elevates the masses out of poverty, gives them choices, and fosters peace whereas protectionism gives political cover to political elites and well-connected lobby groups while lowering the price of war. To oppose free trade is the epitome of foolishness.


1 comment:

  1. just one thing...

    lets say a particular FTA does irreparably harm the farmers. my question is: so?

    the neg.teams are in talks and hammer out BITS and FTAs (in the best of worlds) on balance, not on one particular industries interests. in fact, i would suggest (do i have to?) that the closer the neg. teams get to a greater total bundle of good (vs. bad) the better the FTA or BIT is that (a) that particular party(if not all).

    i can only think of one argument to support the farmers (and those who fight on their behalf) and that is some sort of belief that having your own food supply is necessary in some sort of wild, war or global catastrophe scenario. i think those sorts of arguments are laughable, but at least they are arguments.

    i think the more honest among us would agree that farmers (and their supporters) are essentially arguing in favor of their own good without regard for the total good. could they coincide? sure, re: ridiculous war scenarios (and i mean ridiculous--the land is untouched in korea but global food chains are lost plus some other idiotic factor plus something else...and so on).

    incidentally, speaking of good, ill be the first person to say good riddance when farmers are completely out of the picture in korea...all indications are that they hinder korea's choices, increase prices, burden taxpayers with unnecessary subsidies, and do not represent the best utilization of that particular land.