Trade is Aid?

Every now and then I question whether or not I make the right choice by not exercising my citizen duty to vote in elections. While I am not a fan of the Conservative Party, I certainly am not a fan of the Liberals or the NDP. I often wonder if I should be more pragmatic and subscribe to ‘strategic voting’ by supporting the party of least damage. It doesn’t take long until my position is reaffirmed. Today is one of those days where I am reminded why I never vote Conservative.

Recently, our Finance Minister Jim Flaherty announced that tariffs on more than 1,000 items imported from 72 countries will be increased in 2015. The move will transfer $1 billion dollars from the economy to the federal budget. Any sensible economist would know that the true damage to the economy due government inefficiencies and the nature of tariffs as a tax are surely greater than $1 billion dollars. It is expected that the import tax will raise prices by an average of three percent on popular products including electronics, clothing, shoes, and appliances.

The rationale for this is brutal. Canada maintains a preferential tariff regime which has not been updated since 1974. According to Flaherty, “It was meant to help developing countries. Countries like Hong Kong and Singapore, we were giving them preferential tariffs while their per capita GDP was higher than Canada’s”.  The idea is essentially that tariffs would not be applied on developing nations to the same extent as they are applied on developed nations. The government would altruistically not tax consumers on imports from these countries as a form of foreign aid. This thinking is based on the belief that trade is a zero sum game where allowing exchange with less developed economies means sending a portion of our economic pie away to foreign nations so they can grow. The extent of Flaherty’s anti-market bias is apparent when he argued, “we should not be subsidizing by a preferential tariffs, countries that are no longer in that category of being underdeveloped countries. This includes the BRIC (Brazil, Russia, India, China) countries and they’ve been removed from the list.” Apparently BRIC countries have been ripping us off by becoming more efficient at producing things Canadians want. Good thing the free market Conservative Party is here to save us from our own choices!

Markets are a spontaneous self-ordering system with voluntary exchange at its core. Voluntary exchange dictates that in order for a transaction to occur, both parties must see a personal benefit or else the transaction would not have occurred at all. Trade is not aid. Trade is a mutually beneficial two way street where both parties leave feeling better off. It does not matter whether we are trading with people poorer or richer than us, we are better off either way (and so are they). There is no such thing as a preferential tariff. Tariffs only block and distort preferences. They prevent individuals from engaging with one another in their most desired way and in doing so; they raise the cost of living on everybody. People now have to spend more for the same thing. While, it is understandable that it is unfair that imports from less developed nations face higher taxes than those from more developed nations, the solution is not to bring everybody down to the same high tax level. The small-government thing to do is to instead lower taxes for everybody. Our preferential tariff does not need to be updated. We don’t need to re-examine how to effectively implement a policy based on fallacious premises. We need to obliterate the policy all together.

-Ian CoKehyeng

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