Regulating Imports and the Free Market

Free Market theory is based on producing goods in the area where the total costs associated with that product are lowest. The idea is that dislocation in resources will move production to eliminate excesses. Today many economists and Reaganomics supporters tout Free Market policies. I believe that these individuals have translated lowest cost of production to highest corporate margin. In a Free Market economy all costs, direct and indirect, are associated with each product produced.

A simple example of this concept is the production of a widget. The direct costs are raw materials, labor and infrastructure depreciation. The indirect costs are environmental costs, security, lost opportunity, quality control and any other costs that arise as a result of using this product. If a head of lettuce produced in Mexico costs $1 and a head of lettuce produced in Texas costs $1.50 one would say that the Mexican product costs less. This may or may not be true. If the head of lettuce from Mexico requires additional controls or has some bacteria. All of the costs verifying the head of lettuce and any health costs to individuals plus lost productivity while the person is in bed instead of working are all part of the costs of that head of lettuce.

Free Trade agreements strictly define how many controls may be made on an imported product. This is based on the concept of equals. Products produced in China or Mexico, under free trade agreements, are exactly the same quality. Most recently we have proof that this is not true. We have also found that the regulators responsible to control these products are not properly staffed to do their jobs. This is because these agencies are paid with tax dollars instead of charging the companies importing goods with the costs associated. We are in fact subsidizing imports.

Why should I, as a consumer and tax payer, be required to pay for an agency that controls quality of imports if I only use US made products?

More importantly why should US based production facilities be forced, not only to compete with subsidized imports, to pay the costs of those subsidized products?

I am all for Free Markets. I am also for each company paying for all costs associated with the production of those products. This means that oil companies should pay for international security in the Middle East. This means that every product imported must be inspected and the company importing that product must pay the costs associated. The companies importing products should also be required to verify that the product is made in a country where environmental costs are not superior to those in the US otherwise they should be required to pay a cost tariff to truly represent cost of goods.

The recent recall of toys with lead paint is a perfect example. It just so happens that my father drafted the legislation to remove lead from paint and spent the latest years of his career at CDC heading the Lead Poisoning Prevention program. This is a big deal. The damages from lead in paint are serious even at low levels. We can only assume that in China paint may contain lead. This means that the playing field is not equal and that every painted product entering the US from China should be tested for trace lead. The importer should pay the cost associated with these controls.

We can talk about tires from China, fruit from Mexico or South America, Oil from the Middle East. The facts are the same for all goods, imported goods receive direct and indirect subsidies. To have a true Free Market we must create an environment where the Free Market can exist.

Tags: Government Politics China Corporate America Finance Economy Reaganomics