The liberal think tank Agenda Austria recently quoted a Eurobarometer survey according to which a relatively large number of Austrians are skeptical about free trade. 24 percent of the citizens surveyed think little or nothing about it. So it is not surprising that around 50 percent of those surveyed support protectionist measures to protect domestic companies. This is remarkable given the country’s strong international network. The fact that a good part of the prosperity in this country is due to the free movement of goods does not occur to many fellow citizens. In particular, the import of textiles, electronic devices and consumer electronics from the Far East contributes a great deal to the standard of living of Austrians.
Word should have gotten around by now that the division of labor increases productivity and lowers production costs. But why the division of labor within national borders should be good and bad beyond that is not clear. Free trade means nothing more and nothing less than international division of labor. We have the British economist David Ricardo to thank for the insight gained at the beginning of the 19th century that there was something like “comparative cost advantages” are. This means that it makes sense to focus on those industries where you have the relative has the greatest advantages over the competition – for everyone!
The collapse of supply chains thanks to government anti-business measures in the context of the Covid pandemic has had calls for national self-sufficiency let it get loud. Aiming for that would not be a good idea. Trying to produce everything in your own country so as not to be dependent on foreign suppliers means giving up the advantages of cheap imports. Producing textiles, electronic devices and certain foods in Austria instead of importing them would hit low earners in particular. The prices of the articles in question would rise drastically due to the small size of the domestic market and the associated loss of economies of scale, which would equate to a massive loss of living standards with unchanged income.
Of course, the external costs (e.g. of an ecological nature) caused by long transport routes should not be overlooked. However, it is obvious that the production of bananas and dates in the Alpine region may be technically feasible, but cannot compete with importing these fruits from tropical or subtropical countries, even from an ecological point of view.
The question arises as to what legitimizes a government to ban its citizens from the cross-border exchange of goods and services. After all, it does not erect any trade barriers within the national borders – for example between St. Pölten and Wels. But why does she do it when it comes to business that company A in Vienna does with company B in Shenzhen or company C in Seattle? The consequences of government interventions in connection with Covid-19 have clearly shown what damage this causes – not only for companies, but especially for consumers.
Also protectionist measures, which are viewed positively by many Austrians are problematic. This is a classic example of “What you see and what you don’t see” (Frederic Bastiat). One sees the benefit that the branch in question – for example that of crude steel producers – derives from being protected from foreign competition, but overlooks the fact that all of the customers of the steel producers – i.e. the further processing industrial companies – have to foot the bill in the form of higher purchase prices and thus in turn lose competitiveness. In the end, the consumer also pays more for the end product than he would have to pay under free market conditions. A small number of profiteers is thus faced with a large number of losers. In addition, the free trade barriers (e.g. in the form of tariffs on imported products) take the pressure off domestic manufacturers to improve their offerings and lower prices in order to remain competitive. In the longer term, this leads to stagnation. A good example of this is the US steel industry, which has been shielded from foreign competition for long periods of time by protectionist measures and has lost a lot of technological ground to overseas competitors as a result. Conclusion: Economic protectionism is not a good thing – in any industry.
Experience teaches that every politically negotiated “free trade agreement” – no matter what name it is called (TTIP, CETA, etc.) – is manifested in a contract that is hundreds or even thousands of pages long, in which every tiny detail is dealt with and the wishes influential lobbies is formulated accordingly. If you want free trade, you don’t need big contracts. The US economist Murray Rothbard stated decades ago: “You don’t need a treaty to do free trade.” Anyone who wants free trade and does not want to forego a treaty can do with a few words: All trade tariffs and duties are abolished. Whoever wants to trade is entitled to do so, without any restrictions, across any borders and on any scale.
The enemies of free trade must explain who and what empowers them to patronize citizens in their purchasing decisions and who ultimately benefits from this. In any case, the political class is responsible for the loss of prosperity caused by trade barriers.