Energy policy planners in Washington seem to be hung up on maintaining a classical free world trade in energy.
But they fail to understand that nearly all imports and exports are controlled by some type of "managed trade." This is what the General Agreement on Tariffs and Trade meetings are about. True free trade between nations exists only in the mind of the economist.This year, the United States was a little more than one-fourth dependent on foreign energy supplies. This is likely to rise to one-third by the year 2000, unless the government adopts an energy policy to manage this dependency.
One hundred and seventy-five years ago, when David Ricardo wrote of the economic principle of comparative advantage, he failed to consider many real- world factors, like war, nationalism and unemployment, to name but a few.
The economist's rule of thumb is that all other things remain equal. However, this is seldom the case.
Mr. Ricardo's classic example was trading English textiles for French wine, allowing for more productivity in each nation's unique production capability. Consequently, both countries, and by implication the whole world, would be better off with this new division of labor.
One of his assumptions was that both countries would have nearly equal trade balances.
Today, the United States has about a $90 billion trade deficit, with about half of that coming from energy imports. The non-energy trade deficit has become a major political issue, with President Bush and the auto chiefs traveling to the Far East for relief while the energy trade deficit seems to be ignored.
In Mr. Ricardo's example, the two commodities were needs, but not necessities like energy is in a modern industrial society. If trade relations broke down, the English economy would continue to operate with only mild disruption, while the French would just wash and wear their old clothes one more day.
So-called pure economists would have you believe a "comparative advantage," or better yet, an "invisible hand" guiding the selfish toward the social good, even without their knowledge, will automatically resolve all international trade disputes. This can work if both parties share similar ideals and sense of fairness. But this is far from the real world we live in.
Mr. Ricardo's example did not deal with a cartel that was attempting to charge excessively for its production, which consuming nations had to have to keep their economies going. Increased U.S. petroleum imports would only strengthen the OPEC cartel.
Many economists advocate some form of false price signals, like depletion allowances or tariffs, as the solution to the energy dependency problem. But these interfere with Adam Smith's "invisible hand."
It is evident that the Middle East's best trading product is crude oil. America's best product is probably military arms. Surely, the free trade economists would not have the United States trade bombs to the Middle East for crude oil.
A secure supply of oil from an insecure source can only be enforced through military superiority, which probably costs more than the product itself. But it is difficult to quantify or add this cost to the price of imported oil. Operation Desert Storm was an example of this cost.
Last week there was an attempted coup d'etat in Venezuela. Venezuela is one of the larger suppliers of oil to the United States. If that coup had
succeeded, it is easy to envision a major change in U.S. oil supplies.
Free trade economists might argue that a country has to see its products somewhere, but national leadership can prove to be less economically rational than the economists.
In this ever-changing world, it is difficult to forecast which countries will be our friends by 1995. Just a few years ago the Soviet Union was our dreaded enemy; now the republics are very close to becoming our best friends. Our 40-year friendly relationship with Japan now seems to be deteriorating.
Leadership on U.S. energy dependence requires more than letting international free trade economics operate. For the United States, it requires managed energy imports, or the demand side will continue to dominate the energy equation.