Opinion: The trade declaration Carney should make

Skip to Content News Archives Economy Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomeFP CommentOpinion: The trade declaration Carney should makeOur best fallback from a failed U.S. trade deal is not tit-for-tat retaliation but the unilateral free trade that made Hong Kong richLast updated 18 minutes ago Unilateral free trade helped Hong Kong’s per capita gross domestic product get to 96 per cent of American levels, just before handover back to China, while China was still struggling at eight per cent. Photo by MIKE CLARKE/AFP via Getty Images filesThe trade war between the United States and Canada — or, more exactly, between Donald Trump, who declared it, and Canadian politicians, who try to limit the damage though using the same logic as Trump’s — provides a good opportunity to reflect on how trade and freedom work.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountIt is not a brilliant idea for the Canadian government to impose a tariff on Canadians who purchase American appliances, for example, in order to retaliate against the American ruler who has imposed a tariff on Americans importing Canadian whisky.A tariff on imported goods is a border tax that’s mostly or wholly paid by the residents of the country whose government imposes it — which is why the Trump administration reimburses Americans, not “foreign countries,” for its illegal tariffs.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againNo surprise there. Several economic studies have shown that the tariffs imposed by the U.S. government have had a pass-through of 90 to 100 per cent. American companies and, ultimately, American consumers have paid them. In the same way, of course, Canadians pay the tariffs their government imposes on American goods.Except in totalitarian ones, “countries” in the sense of “states” don’t trade: individuals and their corporate intermediaries do. Free trade is about individuals being free to trade on their own or through free private intermediaries. President Trump obviously does not understand that. People who have studied the topic and read Adam Smith and David Ricardo or the economists who came after them typically do understand, whether they are “on the right” like Milton Friedman or James Buchanan or “on the left” like Paul Krugman.Trade managed by governments is not free trade. In candour not characteristic of contemporary politicians, the expression “free trade” doesn’t even figure in the name of the now impotent “United Sates-Canada-Mexico Agreement.”All-around free international trade is the best situation, multilateral autarky the worst, and unilateral free trade second-best. If countries around yours are protectionist, retaliation is nearly always an inefficient response. The government of a truly free country would declare unilateral free trade, that is, let its citizens import what they want and export what they can, with very few exceptions. Comparative advantage will determine what will be imported and exported. The balance of trade is a false problem: ultimately, products (goods and services) exchange against products, as French economist Jean-Baptiste Say (1767-1832) emphasized. Currency exchange rates, investment flows and other economic variables will adjust in response to any unsustainable equilibrium.It is true that free trade, whether inside or outside a country’s border, frequently generates disruptions, just as free technological development and individual liberty do. But such disruptions are conducive to economic growth and greater opportunities for most people. Trade controlled by governments also creates disruptions (as Trump is proving) but not ones that help create general prosperity.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.Unilateral free trade is not a fantasy. In the middle of the 19th century, the British government basically declared it. Another famous example, closer to us in time, is Hong Kong, whose government, led by British administrators, levied no import tariffs after World War II, generating fast growth even as many people in neighbouring China were starving — literally starving — under Mao Zedong. Both China and Hong Kong started from dire poverty but in 1996, the year before the handover of the territory to the Chinese state, per capita income in Hong Kong was 96 per cent of the U.S. level, while China was still at only eight per cent. (The number for China is now about 30 per cent.)As Mao’s Selected Works confirm, he — and the Chinese Communist Party with him — thought foreign trade was an instrument of subjugation and tariffs were necessary for Chinese development.I have a recommendation for Prime Minister Mark Carney. Instead of retaliation — imposing a border tax on Canadians because Trump has imposed one on Americans — he could make a declaration of unilateral free trade along the following lines:Whatever other states do, our government has decided to eliminate all Canadian tariffs and coercive barriers to international trade. The citizens and residents of this country are free individuals who may therefore trade freely with anyone in any country who is willing and able to trade with them. Any peaceful person or organization in the world who wishes to buy from or sell to the free men and women in Canada is welcome to try. Whether the sum of their free trades results in a trade deficit or a trade surplus, more foreign investment or less, a higher or lower domestic production of automobiles or maple syrup, that is really no busybody’s business in the government of a free country. Each person and private group minds its own business in a spirit of reciprocity.Yes, I realize it’s unrealistic to expect that sort of declaration of Mr. Carney in 2026 — just as freedom of religion or free enterprise were grossly unrealistic proposals or hopes in most of 17th-century Europe. But the ideal of unilateral free trade is desirable and economically feasible, and it is always a good thing to strive for ideals, which, with time, can be realized.Pierre Lemieux, an economist affiliated with the Department of Management Sciences at the Université du Québec en Outaouais, is a research fellow at the Independent Institute (California).Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.