Free Trade and Idealism

Free Trade and Idealism

December 10, 1998
Originally published in Far Eastern Economic Review

In October, the International Religious Freedom Act of 1998 passed through the U.S. Congress with little opposition. The new law enables unilateral export embargoes to be imposed on all countries guilty (in American eyes) of religious persecution. The passage of the act is yet another example of the U.S.'s increasing promiscuity with trade restrictions. An American National Association of Manufacturers study found that between 1993 and 1996, the U.S. imposed 50 sanctions on 31 countries. In the past year, Asia has become all too familiar with the effects of politicized capital flows; now the rising tide of trade restrictions stipulated on moral grounds threatens to further imperil the region's already rattled economy.

Trade sanctions were once the tool of economic interests that sought special-privilege protection for their operations against foreign competitors. Such special-interest pressure received little intellectual or moral support. Today, however, economic protectionist measures have been replaced by trade restrictions argued on moral grounds. Although each "moral" trade sanction has its own logic, the rationale for all such policies is grounded in a naive desire to help the people in the targeted nation. Burma's brutal repression of its citizenry encouraged the state of Massachusetts and then the U.S. to impose trade restrictions on Rangoon. The desire to terminate the world's last communist dictatorship led America's conservative wing to push for tightening the Cuban trade ban with the Helms-Burton Act. The Cuban and Burmese examples are only two of the many trade sanctions that threaten to sink an open world economy. Other American interest groups argue for restricting trade with Nigeria (for its kleptocratic government), with Indonesia (for its treatment of minorities), and with China (for just about everything).

Trade-sanction proponents see all of this as a good thing. Sanctions, they believe, are a powerful tool for eradicating the world's ills—promoting democracy, ending sexism, improving labour conditions and eliminating racial and religious bigotry. But what are their effects? Most research indicates that sanctions are an ineffective way of influencing the behaviour of other nations. A study by the Institute for International Economics found that 87% of U.S. unilateral sanctions failed to achieve their humanitarian aims. Multilateral sanctions have "worked" occasionally, but only by imposing costs on people, not governments. Nations likely to attract sanctions are unlikely to share the resulting economic pain equally: The ruling elite will maintain their lifestyles irrespective of the pain borne by their people. Indeed, more than a year after the Burmese sanctions were imposed, the junta endures but the jobs that would have been created by new U.S. investments remain a dream.

Opposition to sanctions does not of course justify indifference to the world's social and political problems. The debate over sanctions has short-circuited serious discussion over nonpolitical means of advancing these varied moral concerns. One can oppose sanctions while not sanctioning evil. Trade-sanction advocates forget that political measures are readily captured by powerful special-interest groups, who are more concerned with their own economic gain than with a better world. Some defenders of trade sanctions concede the greater burden on the citizenry, but see this as an unavoidable cost of reform. Continued trade with despots, they argue, merely ensures them the additional economic means to maintain their position. Imposing pain—even crudely—eliminates that possibility.

But do trade barriers undermine the Castros and the SPDCs (formerly Slorc) of the world? How frequently do political interventions actually reduce political oppression? During his visit to Cuba earlier this year, the Pope was equally critical of Castro's political regime and the U.S. trade ban. The Dalai Lama has spoken out against proposed trade sanctions against China. President Kim Dae Jung of South Korea is now calling for an end to the sanctions placed on North Korea. At a press conference in June, Mr. Kim said: "I think [the U.S. easing economic sanctions] would be more effective in efforts to get North Korea to open up and liberalize." He's right. Trade weakens totalitarian regimes. Free exchange spurs economic growth and the development of a middle class—and with wealth comes a demand for political openness. As Judy Garland wisely noted: "How are you going to keep them down on the farm once they've seen Paris?" Trade may not ensure a free society, but it does encourage one.

The Greek word for trade, katalattein, means making a friend out of a stranger. When the U.S. limits economic exchanges to those nations that it perceives as sharing its values, it challenges the very ethos of free trade. Trade is only the first step in building understanding between the people of the world. Moral protectionism may please U.S. domestic interest groups, but it inevitably exacerbates global tensions, hinders economic progress and harms those people it seeks to help.