Not a Zero-Sum Game - Ludwig von Mises Institute

NOT A ZERO-SUM GAME
While far from the ideal, the managed-trade regime that followed
World War I1 was a measurable improvement over the beggar-thy-
neighbor protectionism which preceded that conflict. For a while
even, the international bureaucracies that managed trade seemed
to move the world in the right direction, generally lowering tariff
rates. Managed traders seemed to resemble free traders. Howev-
er, as memories of the folly of Smoot-Hawley4 faded, politically
well-connected firms sought shelter from the cold winds of inter-
national competition. As bureaucrats reverted to empire-building
form, managed trade became a fig leaf for protectionism. A run-
down of the major vehicles of managed trade illustrates this.
MECHANISMS OF MANAGED TRADE GATT
The General Agreement on Trade and Tariffs (GATT) came about
largely by default. Established on an interim basis, to be super-
seded by the International Trade Organization, it ended up lasting
four decades when the proposed IT0 failed to muster the votes to
be passed by Congress. GATT basically provided for tariff reduc-
tion based on multilateralism. While it did achieve a number of
piecemeal steps in the direction of freer trade, its weak link was
that it played into the popular notion that unilateral relinquishing
of trade barriers was at best a mixed blessing. The idea that a
country should not give up its trade barriers shifted the focus to
striking a deal and away from the merits of free trade itself.
NAFTA
The North American Free Trade Agreement (NAFTA) is the quin-
tessential managed-trade vehicle sold under the rubric of free trade.
The first tip-off should be its size. While we earlier saw how 54
4. The Smoot-Hawley Tariff was passed in 1930 supposedly to prevent the loss of
American jobs to foreigners. It raised tariff rates to unprecedented levels and ended up
crippling world trade and contributing to the severity of the Great Depression.