For Unilateral Free Trade, Against Reciprocity

The key to appreciating the doctrine of unilateral free trade lies in looking at the department of our The State that enforces protectionism and economic autarky with its guns: The Customs Department.

Is this a socially useful department or is it just one huge obstruction, a rukawat?

What harm will occur to society if this rukawat was abolished? You get to carry all your goodies and walk straight out of the airport.

Not only that, every shop becomes in effect a “duty-free shop” because the shopkeeper can stock duty-free imported goods.

Indeed, the entire landmass becomes the world’s biggest duty-free shopping area.

Great for tourism – the biggest industry in the world.

However, the enemies of such a liberated market order are not only the customs sharks, they also include politicians and diplomats who subscribe to the doctrine of “reciprocity” in trade relations between countries. This doctrine is nonsensical at many levels:

Firstly, nations do not trade; individuals do. And when individuals trade, reciprocity is meaningless. Every decision to buy, and every decision to sell, are independent of each other – and in all cases there is full competition. No one buys specifically from those whom he sells to.

Two examples I offered in an old article advocating unilateral free trade go like this:

Let us forget about the politicians and diplomats for a while, and imagine we are all shopkeepers in a big marketplace. I own a bar that also serves non-vegetarian food. Now, the tailor-master next door is a teetotaller and a strict vegetarian. He never gives me custom. The last 20 years that I have known him, he has never spent a paisa in my establishment. But I always go to him to get my shirts and trousers stitched. Am I doing something stupid? After all, he is the best tailor in town. Should I get my new suit stitched by that very drunken tailor, my very good customer, the last to leave my bar every night, whose hands shake a lot?

Similarly, the government of France disallows the entry of Alfonso mangoes. Does that mean we should not import French wines and cheeses? If we unilaterally open up trade, we gain by being able to consume French wines and cheeses; and the French lose by being forced to consume horrible mangoes from Venezuela, thanks to trade restrictions imposed by their stupid government. If politicians and diplomats stall trade in order to 'bargain' in the interest of the mango business, they will cause losses to all our wine and cheese importers (and consumers).

In yet another article I look at the fisherman who “imports” fish from the sea duty-free. What harm can occur if big ships and big airplanes full of imported goodies unload their cargoes in India?

[I must thank Chandra for unearthing these articles and posting them on the internet, for they are no longer on the newspaper’s website. This was a monthly “Antidote” column I wrote for The New Indian Express on Sundays, for about two years, 2007-8.]

Frederic Bastiat is the only economist I know of who argued tellingly against the customs department and also against the doctrine of reciprocity – which guides the failed “Whither Trade Organization.”

Two of Bastiat’s essays against reciprocity can be found in my The Essential Frederic Bastiat, which you can download free here. There is an entire section titled “Bastiat: The Free Trader.” I recommend that you read the entire section, and then, the whole book.

Away with the customs department!

Away with inter-governmental negotiations over trade!

Let India declare free trade unilaterally.