Ron Paul's Texas Straight Talk - A weekly Column

July 30, 2001

Free Trade Means No Tariffs and No Subsidies

Congress recently considered several trade-related measures containing massive subsidies for American corporations that sell their products overseas. For example, the Export-Import bank received more than $750 million in appropriations funding last week. The biggest beneficiary of this money is China, which has used Ex-Im funds to build nuclear power plants, expand its state-run airline, and even build steel factories that compete directly with our own struggling domestic steel industry. Undoubtedly the American companies who benefit from contracts with China are happy with these trade subsidies, but American taxpayers should not be forced to pay for corporate welfare that simply benefits some politically favored interests. I introduced an amendment to completely defund the Ex-Im bank, because true free trade cannot flourish when subsidies interfere with healthy market competition. Unfortunately, however, the debate in Washington tends to focus on which nations and companies should be subsidized, rather than whether American taxpayers should pay for trade subsidies at all.
I focus on the Constitution when voting on trade issues. This approach leads me to always oppose trade subsidies, as there is no enumerated power that gives Congress authority to send your money abroad to help big corporations sell their products. The current system allows the most powerful interests, with the largest political lobbies, to prevail in the Congressional pork subsidy game. So the biggest corporations tend to get bigger, while smaller competitors face a very uneven playing field. This is not free trade, but rather government-mangaged trade epitomized by international bodies like NAFTA and the WTO. As noted Austrian economist Murray Rothbard explained, we don't need government agreements to have free trade. In fact, true free trade means just the opposite- true free trade occurs only when government is not involved at all. We must remember that government-managed trade always means political favoritism. Merit, rather than politics, should determine which companies succeed in the export markets. Congress should abide by the Constitution and get out of the subsidy business altogether, so that real free trade can work and benefit all Americans.
The same free-market principles that compel me to oppose subsidies apply to tariffs as well. Simply put, tariffs are taxes. Like subsidies, tariffs are paid for by American taxpayers and consumers. I vote against tariffs for the same reasons I vote against any federal taxes- I want to get the federal government out of your pocketbook. Many tariff bills in Congress are touted as pro-American, but they really just raise taxes by stealth. In a free society, consumers must be allowed to buy goods from abroad if they so choose. Americans should not be taxed simply because they determine that their family budgets are better served by purchasing an imported item.
When Congress attempts to punish certain nations by imposing tariffs on their products, it really simply punishes average Americans who end up paying more for the goods they buy every day. Tariffs especially harm the poorest American families, who spend roughly half of their income on just two things: food and clothes. These basic necessities are the most highly-taxed items imported into the United States. Of course many families don't realize that they pay very high import tariffs, because the taxes are buried in the cost of everyday items. Yet estimates show that most poor families pay $1,100 annually because of import taxes. So while it's easy for Congress to impose self-righteous tariffs as a political statement, we forget that our own poorest citizens pay the real price.
Finally, I always oppose trade sanctions against foreign nations. Sanctions are terribly ineffective foreign policy tools that harm the people, rather than the governments, of nations we hold in disfavor. Sanctions also hurt American exporters, including Texas farmers, who are prohibited from selling their products overseas. China, Russia, the middle east, North Korea, and Cuba all represent huge markets for our farm products, yet many in Congress favor current or proposed sanctions that prevent our farmers from selling to the billions of people in those nations. Given our status as one of the world's largest agricultural producers, why would we ever choose to restrict our exports? The only beneficiaries of our sanctions policies are our foreign competitors. I recently voted to against continued trade sanctions against Iran and Libya, and I have introduced legislation to end our trade embargo against Cuba. All Americans benefit from both sides of the free trade equation, and Congress should not interfere with exports any more than it should tax imports.