Most economists will say that free markets produce the greatest amount of output, the lowest price for goods and services, the greatest efficiency, and the highest quality. Free markets are innovative, responsive to the needs of the consumer, and result in higher incomes for all workers, although some workers get much, much higher income than others.
To be fair, some economists disagree. Since in a free market each person is paid according to their contribution, there are often large differences in income between the top management and the average employee. This leads to severe income inequality. These economists would argue that a goal of economic policy should be to somewhat regulate markets to reduce income inequality. That improves economic and social welfare which, they say, is the goal of an economy.
Free markets seldom completely occur. When they do, the results are always the same: more output, lower prices, more efficiency, and the highest quality. An example might be the market for Lasik eye surgery. This is an elective procedure that repairs eyesight to the point where corrective lenses are no longer needed.
Insurance companies will not pay for elective procedures like this. So it was simply a free market. Both eye doctors and consumers were free to enter the market and seek a price. The result was that after a few years, the price of the procedure plummeted from $10,000 to the under $3,000 range. The competition improved the speed and accuracy of the procedure.
In the global market, each country sets its own policies. In many instances, particularly with large trading partners, tariffs and often quotas are imposed. These actions distort the price and market quantities, so the market is no longer a free market.
Another distortion is that highly populated, low-wage countries such as China and India have been able to attract U.S. production. While the low price was viewed as positive, U.S. manufacturers became dependent on foreign production. And there were not many viable options.
President Donald Trump saw the issue of tariffs, quotas, and the concentration of production in China and India as barriers to the free market. He saw that virtually every trade deal involving the United States was slanted in favor of our trading partners and to the detriment of the United States. The deals had lopsided tariffs where China and countries in Europe charge us a 10 percent to 25 percent tariff on U.S.-made cars, while we charge them as low as 2.5 percent on cars they produce to sell in the United States.
Trump is changing this with the long-term goal to be a global free market.
He did that by first bringing every one of our trading partners to the bargaining table to re-negotiate every deal. Since every partner was reluctant to re-negotiate a deal that was so favorable to them, businessperson Trump created a sense of urgency. He placed crippling tariffs on our big trading partners.
Already Mexico, Canada, and South Korea have signed new trade deals. Japan and the European Union have had discussions with the goal of getting to a no-tariff policy. India is talking with the United States about reducing tariffs.
Once all of these countries sign new agreements with the United States, trade will begin to flow more freely. There will be new markets worldwide for U.S. goods and services. Our negative trade annual balance will be reduced, perhaps eliminated.
The last barrier to a free market is to have other countries offer low-wage production or highly efficient automated production. One consequence of the tariff Trump has placed on China is that other countries such as Vietnam and Thailand are attracting U.S. companies to produce there.
In the United States, highly automated and very efficient robots are now used on production lines. Both of these will lead to more competition on the supply side and to moving closer to a free market. That’s really what President Trump wants.
Never has the United States had a very successful businessperson with no political experience serve as president. Never has a president viewed the global economy the way that Trump sees it. Although there’s some short-term pain as Trump uses tariffs as the method to bring trading partners to the table, the long-term gain will be well worth it.
There will be a global free market (admittedly with some imperfections) that will be able to produce more output, keep prices as low as possible, and improve the quality of products. Incomes will rise and less-developed countries will find opportunity. This benefits everyone.
Michael Busler, Ph.D. is a public policy analyst and a professor of finance at Stockton University where he teaches undergraduate and graduate courses in finance and economics. @mbusler www.facebook.com/fundingdemocracy