Trade Briefing Paper No. 2

Free Trade and Human Rights: The Moral Case for Engagement

By Robert A. Sirico
July 17, 1998

The freedom of Americans to trade and invest abroad is being challenged in the name of promoting human rights. Conservative Christian activists and others seek to impose trade sanctions against nations that do not protect human rights. Proposed sanctions include the Freedom from Religious Persecution Act and the revoking of China’s Most Favored Nation status.

Three fundamental misunderstandings cloud the current debate over free trade and human rights. First, cutting government aid to target countries is not the same as raising barriers to trade and investment. Ending foreign aid and corporate subsidies actually promotes development by removing market distortions. Blocking trade, in contrast, hurts U.S. consumers and exporters as well as the most economically vulnerable people in the targeted nations.

Second, some advocates of free trade in the U.S. business community have weakened their case by failing to acknowledge that human rights abuses exist. U.S. multinational firms further undermine their credibility by supporting government intervention through such agencies as the Export-Import Bank and the Overseas Private Investment Corporation.

Third, Christian conservatives who support sanctions betray a lack of understanding of how trade promotes freedom and development. Economic reforms in China have transformed daily life for hundreds of millions of people who now enjoy greater opportunity, freedom of movement, material abundance, and access to Western ideas. Trade with China benefits Americans through lower prices, wider consumer choice, and greater returns on investment.

Imposing sanctions against China will disrupt this mutually beneficial relationship while doing nothing to improve human rights. Like the failed embargo against Cuba, trade sanctions isolate the victims while strengthening their persecutors. Sanctions imposed in the name of human rights also serve the interest of domestic protectionists by limiting competition. The best policy for promoting freedom and human rights remains economic and moral engagement.

Introduction

The policy community has been debating an interesting question: whether, or to what extent, concerns about human rights and the right to free religious expression should affect U.S. trade relations with countries that violate human rights and restrict the right to worship. That issue is also directly connected with competing visions of the nature of trade relations themselves. Do they consist solely of businesses and consumers reaping gains from exchange across borders? Or should those exchanges be managed by government regulations and subsidized by international lending institutions?

Pope John Paul II, in his speech to the Vatican Diplomatic Corps in 1995, had the following to say:

In today’s interdependent world, a whole network of exchanges is forcing nations to live together, whether they like it or not. But there is a need to pass from simply living together to partnership. Isolation is no longer appropriate. The embargo in particular, clearly defined by law, is an instrument that needs to be used with great discernment, and it must be subjected to strict legal and ethical criteria. It is a means of exerting pressure on governments which have violated the international code of good conduct and of causing them to reconsider their choices. But in a sense it is also an act of force and, as certain cases of the present moment demonstrate, it inflicts grave hardships upon the people of the countries at which it is aimed… . Before imposing such measures, it is always imperative to foresee the humanitarian consequences of sanctions, without failing to respect the just proportion that such measures should have in relation to the very evil which they are meant to remedy.

The recent case of India illustrates the confusion that clouds the issue. The Indian government’s testing in May of nuclear devices in blatant disregard of the Nuclear Proliferation Prevention Act passed by Congress in 1994 raises a human rights issue because controlling the spread of nuclear weapons is important to the safety and security of us all.

In response to those tests, the United States imposed economic sanctions. But let’s look at the fine print. Aaron Lukas of the Cato Institute pointed out in the Journal of Commerce on May 22, 1998, that those “sanctions” are largely an end to wasteful foreign aid and corporate welfare spending. Between 1946 and 1996, India received some $50 billion from Washington. The sanctions have ended that flow of government-to-government aid. The sanctions also block Export-Import Bank and Overseas Private Investment Corporation loans that directly subsidized private trade and investment. Those programs actually impeded economic progress by channeling resources in ways the market would not otherwise allocate them.

Those are the kinds of so-called sanctions any believer in free trade should be glad to accept. Yet the sanctions also prohibit U.S. banks from lending to state-owned Indian enterprises and ban millions of dollars in exports, which is very difficult to justify. That is an example of U.S. involvement in the micromanagement of international trade with no expectation that the sanctions will actually achieve their goal.

I cite the case of India because it shows the muddy thinking that dominates this debate. The first error is to confuse aid with trade. The second error, evident within some sectors of the business community, is to dismiss the issue of human rights and to remain silent, as individuals and as a nation, in the face of human rights abuses in the belief that economic interests ought to prevail in foreign relations. A third error—currently promoted by a diminishing segment of the Christian right—is to politicize international trade by making it an arena for human rights battles.

Trade Yes, Aid No

The debate on U.S.-Chinese trade relations, in particular, has led to some vigorous disagreement between some conservative Christian activists and advocates of free trade. This becomes most visible during the annual debate on renewing China’s “Most Favored Nation” status (which means, in today’s political context, normal trade relations). The implications are broader, however, because many nations restrict the freedom of religious practice. In particular, Russia has extended full freedom of worship to only four main religions while delegitimizing others. Cuba only recently began to tolerate public expressions of the Christian faith.

Since the great China debate, dozens of bills that would make trade relations contingent on the protection of human rights have been introduced in Congress. Included on the list of currently targeted countries are Burma, China, Colombia, Cuba, India, Indonesia, Iran, Iraq, Libya, Mauritania, Mexico, Nigeria, North Korea, Pakistan, Peru, Russia, Serbia, Sudan, Syria, Thailand, Trinidad and Tobago, Turkey, and Zaire. The United States has imposed sanctions more than 60 times in the past five years—more than half the total of all sanctions imposed since World War II.

Then there is the Godzilla of all current sanctions bills, the Wolf-Specter bill, which the House passed overwhelmingly this spring. It empowers the State Department to classify countries on the basis of perceived oppression of religious groups; a finding of wrongdoing leads to an automatic imposition of targeted sanctions. Some of the sanctions, as well as other parts of the original bill, were cut. At present, it focuses on cutting off foreign aid or limiting the granting of visas, and its trade sanctions are targeted rather than across the board.

Without taking a position on the latest version of the bill, I have to wonder if those changes reflect a change of heart regarding the effects of the sanctions themselves or whether they are only a bow to political reality. I believe that many people who support this bill view it as a first step in a global social engineering project in which the United States becomes the world’s moral arbiter. If so, the bill can only lead to worse legislation that will eventually be counterproductive to the cause of open societies, religious freedom, and international cooperation.

The bill also renews extreme sanctions against Sudan. Is that the direction in which the bill’s supporters would like to see U.S. policy go in the future? Is the bill only a wedge for more extreme measures to come? We must keep our eye on its trajectory.

The reasons cited for the imposition of sanctions on the countries mentioned are various, but most relate to human rights. I believe that what activists say about those countries is true; should we then trade with regimes that restrict religious freedom and violate human rights?

People on all sides of the issue agree on certain goals: we want tyranny to end wherever it exists, and in its place we want to see the establishment of free societies that will ensure the dignity of human life and protect freedom of conscience and religion.

Some vocal Christian activists emphasize only human rights. On the basis of extensive documentation of torture; political imprisonment; religious persecution; mandatory abortions; suppression of churches; jailing of priests, bishops, and evangelists; and even murder, those activists have compared the present situation in China and elsewhere with Nazi Germany and the Soviet Union.

In light of those realities, many well-intentioned believers call for a curtailment of trade relations, and some even call for a complete trade embargo, drawing a comparison with our past relations with Nazis and communists. That is not a valid comparison, since our dealings with Nazis involved fighting a bloody world war and engaging in aerial bombings of German cities. Our dealings with the Soviet Union involved the relentless production of weapons of mass destruction and a huge and expensive military buildup.

The Chinese Miracle

The pro-free-trade business interests emphasize different points and suggest a different agenda. They point out that China is experiencing a historic economic boom, which was brought about by a rapid transition, beginning 15 years ago, from centrally planned socialism to an increasingly capitalist system organized along federalist lines.

Supporters of free enterprise also have observed that, though the Chinese leaders still maintain that China is a communist state, they have, in fact, completely redefined the term. Tax rates have been slashed (and in some regions are actually lower than those of the United States), industries have been privatized, labor markets have been freed in relative terms, housing ownership is encouraged and growing, and joint ventures with Western companies are increasing rapidly.

The Chinese stock market invites wide public participation, while industrialism and technological progress are proceeding at a breakneck pace, especially in the south. With more shipping lanes opening up each month, the northern region of China has begun to share in the boom as well. The results have been astounding: in one generation, China has moved from a society totally dominated by one of the world’s most murderous regimes to one of increased material prosperity, freedom of movement, rising commercial opportunity, and relative abundance.

Proponents of free enterprise also point out that the United States has benefited from Chinese economic growth. As a result of our trade relations with China, American consumers enjoy high-quality consumer goods of all types, from high-tech products to clothing. Browse any U.S. shopping center and you will find picture frames, calculators, napkins and napkin holders, glassware, party favors, containers, kitchen appliances, toys, puzzles, shoes, paper products, electric fans, cosmetics—to name a few items—all featuring the “Made in China” label. American consumers have access to those items at low prices, and the import boom has freed capital and labor in this country to concentrate on producing items in which we have a comparative advantage as a nation: financial services, computers, software, agricultural goods, detergents, tires, vehicles of all sorts, furniture, building supplies, and many other things that are available for export to China and other nations.

Moreover, one can no longer say that many classes of goods are made solely in one country. Computers can feature American microchips and software, Japanese communications packages, and Chinese electronic parts. The same is true of cars, clothing, and foodstuffs. The recently announced merger of Daimler-Benz and Chrysler is a case in point. What will happen to the “buy America” campaign with respect to the new cars produced by a German-American company? All of those products provide good examples of how trade can benefit people of all societies.

Business Turns a Blind Eye

The Christian right and supporters of free enterprise view the present situation in radically different ways. What strikes me, however, is how each side seems unable to concede that the other side can contribute to a fuller understanding of present realities.

In many cases, those in favor of free enterprise have turned a blind eye to human rights abuses for fear that mentioning them might endanger the growth and expansion of trade. They frequently exhibit little concern about religious persecution and tend to regard human rights activists and religious leaders as belligerents or idealists who don’t understand the “real” world.

The same is true of government leaders. In particular, the Clinton administration’s dealings with China have been characterized by a moral blindness to the reality of suffering and persecution in China. Jimmy Carter, writing in the New York Times last year, exhibited the same myopia. That is hardly a new phenomenon. U.S. government officials in the Roosevelt, Truman, Nixon, and Carter administrations befriended Stalin, Khrushchev, and Brezhnev, hoping to win their favor but showing little concern for the millions who suffered under their rule. Truly, the American corporate lobby is capable of deep cynicism and disregard for the basic freedoms of the mass of people living under authoritarian regimes.

Worse, rather than trade on a purely commercial basis, many corporate interests seek special privileges and subsidies. Those include loans from the Export-Import Bank, which underwrites foreign investments at taxpayer expense, and investment guarantees from the Overseas Private Investment Corporation, which also operates at taxpayer expense. They have lobbied for World Bank infrastructure development loans, support from the International Monetary Fund, subsidies from the United Nations and its myriad affiliates, and much more.

To them, free trade is bound up with such guarantees. The business lobbies that work hard against economic sanctions rarely mention those extra perks, or if they do speak about them, they support them. Foreign aid, loan guarantees, and subsidies are not free trade but the opposite: government planning. Such subsidized investment comes at the expense of the American people, who are ultimately responsible for those loans and guarantees. It is the height of naiveté for American business to believe that the government should intervene in the trade process on their behalf but that political intervention will not backfire against their interests.

For any true free trader, such tax-funded interventions and distortions are anathema. I support the immediate cutoff of all IMF loans and the abolition of all government programs that subsidize foreign trade, beginning with regimes that engage in political and religious persecution, but certainly not limited to them.

Fortunately, such loans and aid are not what sustains the international economy. Most of our trade with the world is not subsidized; it reflects the common interests of manufacturers, consumers, shippers, entrepreneurs, and bankers in all countries. By all means, cut off privileges and subsidies, but do not damage the genuine commercial relations that have so improved the lives of people around the world.

Economics 101 for Christians

I’ve discussed the selective vision and moral blindness of certain business interests. Now, I will address the economic misunderstandings of conservative Christian activists. Trading with a country is not the same thing as placing a moral imprimatur on the government of that country. Some Christian activists have demonstrated an embarrassing lack of understanding of that basic fact.

To say, “I support trade sanctions on country X,” really means, “I think that American consumers ought to be punished by higher taxes for their desire to buy products from country X. American producers ought to be forced by their own government to invest someplace where they are less likely to make money. The U.S. government, not markets, ought to determine where and what people buy and sell across borders with their own money. Moreover, the people in country X ought to be denied essential goods and services and the right to enjoy the fruits of the international division of labor.”

Let us be honest about the economic consequences of sanctions, although passionate advocates of sanctions evidently do not think much about economics. For instance, in the debate about trade with China, not once have I seen in their writings any discussion of the Chinese economic miracle and what it means to the people of China, including the Christian church in China. Not once have I seen an acknowledgment that the Chinese government has allowed an unprecedented increase in the freedom to own property, to work, to engage in enterprise, to pursue economic interest, to own a home, to build a business, and to keep profits.

Indeed, in the writings of conservative Christian activists, the words “profit” and “economic interest” have been used as if they were the devil’s own words. One expects such anti-business rhetoric from the left, but it is disconcerting when it comes from conservatives. Not once have I heard discussed what the explosive growth in material prosperity and the new freedoms that have made it possible mean for China’s future. Every day, we hear more news of China’s path to reform. In a few years, for example, more than half of its state-run industries will be in private hands.

How can we act as if China is one huge prison camp, when the far more complex reality is there for anyone to see? Members of the American business community who frequently deal with China—among them Christians who devote their lives to serving others through economic endeavors—are dismayed at what is being written and said by some conservative Christians involved in the debate. An economic miracle is taking place —a historic chance that the Chinese people will be made permanently free to pursue their individual dreams—and yet all some people can talk about is thumbscrews and prison bars. Like socialists of old, they have even taken to disparaging economics itself.

That is a huge error. Sanctions against Cuba have done little to encourage freedom of expression there. But the influx of outside influence that came with the pope’s visit in January 1998 did succeed in opening up Cuban society somewhat. I was fortunate enough to be there during that time. Not once did I hear an average Cuban, struggling to make ends meet under extraordinarily difficult circumstances, call for the extension of U.S. sanctions, a good indication of how unsuccessful sanctions have been.

Most of the countries likely to be hit by the Wolf-Specter bill on religious persecution are prime markets for future exports. But the export of goods also means the export of influence, both on the people and on the regimes in question. We shouldn’t embrace bills that would limit our influence; we should embrace strategies that strengthen our influence, while at the same time fostering the development of private networks that can circumvent official channels.

Handmaidens of Protection

In addition, advocates of sanctions seem unaware of the role they unwittingly play in the protectionist cause. Leaders of some industries in this country would like to use the power of the U.S. government to gain an unfair advantage in trade. They are protectionists who seek profits, not by serving the consumer, but by shutting others out of the market with import quotas, tariffs, and lawsuits against importers. Since the Industrial Revolution, protectionists have brought about high prices, economic inefficiencies, recessions, depressions, and wars, all of which consolidate the central power of the state.

Protectionist interests sell out free enterprise principles and seek special protection from the government at the expense of consumers. Keeping the protectionists at bay has always been a high priority of all believers in human liberty and human rights.

Whether they know it or not, conservative religious activists who call for trade sanctions and favor cutting off commerce with foreign nations are playing directly into the hands of the protectionist lobbies. They are tools of the worst of the American corporate class—a class that enriches itself at everyone else’s expense. Protectionism and sanctions are not only bad economics, they are also the politics of business and corporate corruption.

Conclusion

Christians are right to pray for persecuted people around the world. We are right to engage in civic activism. We are right to send missionaries to serve their needs. Indeed, during the Cold War, Christians, together with human rights activists, exerted pressure in every way they knew. And though many of the captive nations are now free, and religious toleration has arrived in many former communist states where evangelization is under way, persecution still persists in practically every country where the government continues to operate in an authoritarian and totalitarian manner.

It is time for both sides to concede that their opponents have some valid arguments. I see no advantage for either side in denying the reality of human rights abuses or in pretending that embargoes and trade wars have any constructive role to play in ending them. There is no moral justification for withholding vigorous protest of inhumane policies because they may threaten commercial relations, but neither will anything be gained by linking free trade with accommodation to Hitler. When we speak about our trade relations with foreign countries, I see no reason why we cannot do it with both moral passion and economic understanding.

There is room for consensus on the question of how trade policy and human rights policy intersect, but it’s going to require some give and take on both sides. We can start with multinational business dropping its support for tax-subsidized trade programs, and with human rights activists trying to understand the role of business, and especially the role of free trade, in enhancing the material well-being of all people and the promotion of human rights.

In conclusion, Ronald Reagan’s words are worth recalling: “The freer the flow of world trade, the stronger the tides of human progress and peace among nations.”

The Rev. Robert A. Sirico is co-founder and president of the Acton Institute for the Study of Religion and Liberty, based in Grand Rapids, Mich. (Rsirico [at] acton [dot] org). This Trade Briefing Paper is based on remarks he delivered at a Cato Institute Policy Forum on May 27, 1998.