As the US House and Senate continue to thrash out details of a final version of the $800bn-plus economic stimulus package, there is relief from some of the country's foreign trading partners that a 'Buy American' provision has been softened. However, as David Birnbaum points out, some protection is always necessary since free trade simply doesn't exist.

In a world of free speech, there are very few off-limit topics. One, however, is the efficacy of free trade.

Free trade is defined as the unrestricted export and import of goods and services. The economists' arguments in favour of free trade are clear, well known and valid:

• Free trade ensures the importing country receives the best quality products and services at the lowest cost. 
• Free trade provides jobs and foreign exchange to exporting countries.
• Free trade provides developing countries an opportunity to industrialise.
• Free trade does not increase unemployment in importing countries.
• And, at the present time, the most important argument: Protectionist barriers will drag the current recession into a global depression, just as the Smoot-Hawley tariff of 1930 did.

All these economists' arguments are indisputable — provided they remain limited to economics. The moment we move away from this narrow area, the arguments fall apart.

The truth is free trade does not exist, has never existed and no sane person would ever want to live in a free trade world. Who among us wants a system which allows exports of weapons of mass destruction to Iran, or any military hardware to North Korea?

Limitations of free trade
Governments must have the right to restrict imports of toxic milk products, flammable babywear, or contaminated medicine. Likewise governments must have the right to deny entry to airlines who fail to maintain their equipment, or the flow of funds to terrorist organisations.

Yet all these restrictions are limitations of free trade.

Doubtless, economists can argue that these examples are so far outside the normally accepted concept of free trade that they become the proverbial exceptions that prove the rule.

After all free trade is important but, practically speaking, matters of life and death trump free trade. 

This is a good argument, but it misses the point. How does one define "matters of life and death"?  Are not global pollution and global pollution "matters of life and death"? 

More people die each year from pollution-related diseases than all the soldiers in WWI. In this sense, are not unprotected coal-powered electric generation plants weapons of mass destruction?

The German government does not allow the import of garments dyed with AZO dye-stuffs because of pollution concerns. Is this an acceptable exception to free trade? And, if so, what other pollution and global-warming concerns are grounds for acceptable exceptions?

The fact remains that once the protectionist camel sticks his nose under the free trade tent, the whole concept begins to lose meaning. 

Environmental impact
In fact, I suggest that the relationship between international trade and the environment will become the single greatest source of trade restrictions in the near future. 

Must a country permit the importation of products that cause pollution? Must a country permit the importation of products when their manufacture caused pollution?

The country that relies on polluting coal-powered electric generating plants enjoys a financial cost advantage over their trading partners that demand eco-friendly electric power generation.  

Their lower cost electricity is a subsidy on their export products which provides an unfair cost advantage.

In the name of free trade, is an importing country forced to accept subsidised products and simultaneously forced to import the added pollution?  

Up to the present time, this has been a moot argument. The US Government has done little or nothing to limit pollution and global warming and as a result cannot complain when their trading partners follow the same non-policies.

However, the new administration is bringing a new pro-active eco-friendly policy which comes with two price tags:

• A higher direct cost. A polluting coal-powered electric generation plant costs $800m. That same plant minus the pollution and global warming costs $3bn.

• A higher indirect cost. The cost of every product requiring an electric power source is affected.  Those using the polluting source are more competitive.

Despite the current recession, the industrialised importing country might still be willing to pay the higher direct costs in order to reduce pollution and global warming.

After all, these are serious problems requiring immediate solutions.

But it is highly unlikely that they will make the enormous investment to cut their pollution and global warming while simultaneously subsidising the export pollution and global warming from their trading partners.

At the end of the day, the argument is not between free trade and protectionism. No one wants free trade and everyone agrees that some protection is necessary. The question is, how do we define necessary protection.

Provided we define protectionism in economic terms — protection of local companies and local jobs — protectionism makes sense. 

But when we define in protectionism in survival terms — protection of the very world we live in — free trade makes no sense. 

Pollution and global warming are global problems. They too are exports and imports — and they should be limited.

David Birnbaum is the author of The Birnbaum Report, a monthly newsletter for garment industry professionals. Each issue analyses in-depth US garment imports of four major products from 21 countries, as well as ancillary data such as currency fluctuations, China quota premiums and clearance rates.