Unilateral free trade helped Hong Kong’s per capita gross domestic product get to 96 per cent of American levels, just before handover back to China, while China was still struggling at eight per cent. Photo by MIKE CLARKE/AFP via Getty Images files

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The trade war between the United States and Canada — or, more exactly, between Donald Trump, who declared it, and Canadian politicians, who try to limit the damage though using the same logic as Trump’s — provides a good opportunity to reflect on how trade and freedom work.

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It is not a brilliant idea for the Canadian government to impose a tariff on Canadians who purchase American appliances, for example, in order to retaliate against the American ruler who has imposed a tariff on Americans importing Canadian whisky.

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A tariff on imported goods is a border tax that’s mostly or wholly paid by the residents of the country whose government imposes it — which is why the Trump administration reimburses Americans, not “foreign countries,” for its illegal tariffs.

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No surprise there. Several economic studies have shown that the tariffs imposed by the U.S. government have had a pass-through of 90 to 100 per cent. American companies and, ultimately, American consumers have paid them. In the same way, of course, Canadians pay the tariffs their government imposes on American goods.

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Except in totalitarian ones, “countries” in the sense of “states” don’t trade: individuals and their corporate intermediaries do. Free trade is about individuals being free to trade on their own or through free private intermediaries. President Trump obviously does not understand that. People who have studied the topic and read Adam Smith and David Ricardo or the economists who came after them typically do understand, whether they are “on the right” like Milton Friedman or James Buchanan or “on the left” like Paul Krugman.

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Trade managed by governments is not free trade. In candour not characteristic of contemporary politicians, the expression “free trade” doesn’t even figure in the name of the now impotent “United Sates-Canada-Mexico Agreement.”

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All-around free international trade is the best situation, multilateral autarky the worst, and unilateral free trade second-best. If countries around yours are protectionist, retaliation is nearly always an inefficient response. The government of a truly free country would declare unilateral free trade, that is, let its citizens import what they want and export what they can, with very few exceptions. Comparative advantage will determine what will be imported and exported. The balance of trade is a false problem: ultimately, products (goods and services) exchange against products, as French economist Jean-Baptiste Say (1767-1832) emphasized. Currency exchange rates, investment flows and other economic variables will adjust in response to any unsustainable equilibrium.

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It is true that free trade, whether inside or outside a country’s border, frequently generates disruptions, just as free technological development and individual liberty do. But such disruptions are conducive to economic growth and greater opportunities for most people. Trade controlled by governments also creates disruptions (as Trump is proving) but not ones that help create general prosperity.