Is Free Trade really Free?

After the State of The Union Address given by President Donald Trump last week, I and my colleague engaged in a discussion about the implication of levying tariffs on the goods imported into the United States or even any country at all. The president cited an instance where Harley Davidson had been imposed a tariff of up to 100% on its bikes which were imported into India (sort of).

I was in favor of such a tariff and she was not. She believed such a tariff would follow similar scenarios that happened in the past when tariffs and import taxes had been instituted when these taxes hurt the US and it would likely do so again. A cursory study to assess the sentiments of policy makers and experts on free trade reveal that there is no general consensus of the advantage or disadvantages of tariffs.

This caused me to launch into a survey of trade deficit which is difference between the monetary value of a nation’s exports and imports by country (see the figure below for the Cumulative Current Account Balance across for different countries). I believe most of the countries in green such as Russia, China, Saudi Arabia et cetera, are in the surplus because of their trade laws. Contrary to the speculations that a higher tariff would increase the price of local goods, I think restricting imports through tariffs can have a balancing effect. Most of the countries that are green seem to limit free trade.

Map of TRADE DEFICIT (1998–2008)
(source: wikipedia)

I am pretty impressed that Nigeria is green. I had thought it would be otherwise. In the past 10 years, the government has restricted the importation of a lot of goods into the country or heavily tax them. This is causing a move towards relative self sufficiency. Nigeria now produces a lot of items previously imported and even export them to other African nations. Bear in mind that Nigeria has been in a recession in the past 2 years since the price of oil dropped from $100 to $55 per barrel.

It is then evident to see how pulling out of the Trans Pacific Partnership (TPP) seems logical. Countries in the TPP include Australia, Brunei, Canada, Chile, Japan,Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. In such an arrangement such as with the TPP, tariffs are not imposed on member countries. If you notice in the deficit map above, almost all countries in the TPP have a considerate amount of deficit. I will venture a guess that this is because their local trade is not protected. Trump withdrew the USA from TPP a few weeks ago causing mixed reactions across the political spectrum.