Here’s another from the Words-No-Longer-Mean-What-They-Did file. In talking about free trade, what’s the contrast class? It can’t be compelled trade, since that would just be a synonym for expropriation. And yet by free trade we don’t just mean trade that isn’t coerced. So what do we mean?

Certainly at most dinner tables we’re free to trade, but we’re not really free not to. That is, in saying, “I’ll pass you the peas if you’ll pass me the stuffing,” there’s no implied “and if you don’t I won’t.” But “If you don’t I won’t” is implied at a garage sale if I say, “If you give me that lamp I’ll give you $12.” So, as a first pass at least, it’s an if-and-if-not-not that we mean by a trade being free rather than coerced.

But as I say, only as a first pass. By “Your wallet or your life!” is meant, “If you give me your wallet I’ll spare your life. And if not not.” But we’re reluctant to call this a free trade. Strictly speaking you’re free to decline the offer. But we all recognise in what sense you’re really not.

But what sense is that? In the sense that there are certain offers which, though rational to accept, one shouldn’t be offered in the first place. “Your wallet for your life!” is certainly one of them. But what about, “Work for nothing but room and board or you’re on your own!”? This is why Marx thought slavery needn’t involve chains. It simply requires the absence of any viable alternative.

So some people think your accepting a trade isn’t free unless you do have a viable alternative. But if you don’t, do I have – or at least does the polity in which we’re both embedded have – a duty to provide you with one? If so, then – or so many on the political left believe – free trade is impossible unless there’s a guaranteed survivable income already in place should you decline the trade.

Not so, argues the political right, because in our more affluent world a survivable income rapidly morphs into a dignified one, and thence to a demand for income equality. But income equality puts the kibosh on productivity. And an unproductive polity is an impoverished one. So whereas yes, wage slavery is indeed a species of slavery, it’s the price the rest of us seem willing to pay for the dividends of more widespread prosperity. But, the right adds, for those who are not in such a subaltern position, free trade is not only possible, it’s more widely the default condition.

Laudable efforts at mitigation aside, is there any way to avoid this result? There is not. Nature red in tooth and claw makes no exception for humans. To ask us not to exploit an asymmetry in our bargaining positions is to ask us to become a different species. The kindergarten Christian imagines things will be different in the Hereafter. I’m sure they’re right. But I’m equally sure there won’t be any humans there.

Still, at least in this sense of not being coerced, the vast majority of trades are free. But clearly that’s not what we mean by free trade. What we mean is trade free of governmental intervention. Why would government intervene in our otherwise voluntary exchanges? For two reasons:

First, governments need the funds to provide the services for which we want government in the first place: defence, policing, consumer protection, and so on. And to this end a head tax won’t work. Why? Because taking a thousand dollars from a billionaire means nothing to him. From a pauper it means everything.

Some people try to justify graduated taxation on the grounds that the rich have more to protect. As if her life is worth less to the pauper than is his to the billionaire! And the more one has to lose other than his life, the less he loses by losing it. So no, that can’t be the justification. Rather it’s that we tax the rich for the same reason bank robbers rob banks. Because that’s where the money is, stupid! And the same applies to property taxes. It costs the same to fix a pothole on 3rd as it does on Elm. It’s just that the people on Elm can afford to pay whereas the people on 3rd cannot.

And the second reason is that we empower our government to encourage the trading of some goods and services, like milk and day care, and discourage others, like soft drinks and prostitution. And the least invasive way of doing that is by taxation at the point of trade. Why? Because consumption of most goods and services is a private act, whereas the trading of them tends to be public. So we don’t tax you for smoking cigarettes. We tax you for buying them.

Having a job is an exchange of labour for money. Hence income tax. But working under the table, though still rampant in some jurisdictions, becomes increasingly difficult as the cost of surveilling our transactions decreases. But once again, what justifies the indexing of taxation to the value of the transaction? Nothing, save that if you can afford to buy a more expensive house, presumably you can afford to pay more for the transfer.

There’s been a lot of confusion of late about who’s paying the tariffs governments impose on imports. There needn’t be. A tariff is a tax, paid by the importer, on the trade with the off-shore provider. The cost is then passed on to the wholesaler, from the wholesaler to the retailer, and thence to the consumer. So in principle at least the tariff could be imposed instead at the till with the same effect.

Of course the higher the tariff the greater the disincentive to purchase from abroad. So tariffs purport to encourage in-country production. But at the same time they discourage the imports the government would otherwise tax. So getting the balance right – not only for the in-country producer but also for the consumer – is always saddled with the perils of guess work. The taxes from in-country production might compensate for the higher cost for the consumer, but that’s small compensation unless that dividend can rebound somehow to the consumer. So no surprise here. As with any government action, it’s all about balancing conflicting interests.

Nomenclature notwithstanding, tariffs and duties are indistinguishable. If I buy something there and bring it across the border, whether for my own consumption or to sell to others, I’m both the exporter and the importer, but the importer nonetheless. Governments want to encourage small scale cross-border shopping, so they may allow a generous exemption. But the absence of a duty, a.k.a. tariff, is no less an ‘intervention’. This is because “All is permitted save what is prohibited!” is logically equivalent to “All is prohibited save what is permitted!” So so long as the government can intervene it has intervened. But more about that when we’re more at our leisure.

For now suffice it to say there’s no such thing as free trade. Nor could there be. Governments need to tax, and the most cost-effective place to do so is on our trading with others. Just exactly at what juncture and at what level is something we can angst about. And because by definition the actions of government produce winners and losers, whatever we angst about we’re going to argue about. But before we get our blood at too high a boil, let’s remember we’re arguing about the who, the what, the where, and the when, not the whether or the why.

Categories: Everything You Wanted to Know About What's Going On in the World But Were Afraid to Ask, Social and Political Philosophy

Tags: duties, tariffs, taxes, trade