Most Favored Nation

In Bastiat's story of Robinson Crusoe and the stranger with game to be exchanged for vegetables, you will re call that Crusoe closed the conference by saying: "Stranger, in order to induce us to accept your pro posal, we must be assured . . . that you will lose by the bargain. For, as in every exchange there is neces sarily a gaining and. a losing party, we should be dupes, if you were not the loser." This attitude toward trade persists in the world today. It seems especially prevalent af!long government officials who wish to guide the world's business. Most Favored Nation In discussions of foreign trade, the term most-.favored nation clause is often used. This clause has, for several decades, been a part of many comlnercial treaties be tween nations. Its purpose is to prevent one nation's being treated more favorably than any other nation signing the commercial pact. Thus, no favoritism among the signa tory nations. Back of this idea is the concept that by reducing tariffs we are granting a favor to the other nation. We are; but it would be more nearly correct to say that the most favored nation in every such deal is the one granting the reduction. Why is it a sacrificial act to grant a favor in which you yourself will share?

In the great expansion of trade restrictions following 38 World War I, some were imposed with the intent of retaliation. If country A raises a tariff wall against products from the United States, we are hurt by it; there's no doubt about that. Country A, however, may fail to realize that its citizens are hurt to an equal or an even greater degree. So, what do we do about it? We are likely to say: "You can't do this to us!" To drive home our conviction, we raise a retaliatory tariff against the products of country A. And who is affected by it? Coun try A, to be sure, is hurt by our tariff because its people will have greater difficulty in exporting goods to us over the tariff wall; but we, too, are hurt by our tariff against the other country's goods. Our consumers must pay more for imported goods which were formerly brought in duty-free. So the effect of such a combination of tariffs is to impoverish both nations. As Bastiat put -it: "A pro tective duty is a tax directed against a foreign product; but we must never forget that it falls back on the home consumer."