| Americans would be better off if the United States unilaterally abolished all tariffs and trade barriers – even if no other country ever reciprocated – Milton Friedman |
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International Trade – Part II
By: George Noga – September 19, 2016
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The economics of international trade is one of the few things about which all economists – liberal and conservative – are in agreement. By expanding the size of the market to the fullest extent possible (global), free trade enables greater specialization, economies of scale, comparative advantage and generates more wealth for everyone than any system that restricts cross-border exchange via tariffs or trade barriers. Most thinking about trade is upside down. What makes us well off is imports; exports are merely the cost of obtaining the imports. As usual, Milton Friedman said it best: “What we export we cannot eat, wear or use. It is imports that provide us TVs, cars and shoes. The gain from foreign trade is what we import. What we export is the cost of getting those imports. The proper objective for a nation (first propounded by Adam Smith) is to get the most imports possible for the least exports.” Tariffs and trade barriers raise costs and reduce the amount of imports bought with a unit of exports. Trade does not occur between countries but between people. It is a non-coercive voluntary action where both parties benefit. America did not buy those athletic shoes made in China – you did. In our households we know we are better off getting more in and sending less out. Our standard of living both as a nation and as a family is highest when we maximize imports and minimize exports. This is the dead opposite of the rhetoric we hear from the media and from both political parties and candidates. When countries go to war, they blockade their enemy to keep them from trading. Protective tariffs are the means nations use to prevent their own citizens from trading. We do to ourselves in time of peace what our enemies do to us in time of war. Trade agreements are managed trade rather than free trade; however, they create trade that is freer than before, even with incrementalism and lengthy phase in periods. Trade is not an us versus them proposition and domestic tariffs and trade barriers are not chits to be given up only if reciprocated in roughly equal measure by the other side. Even a poorly negotiated trade deal is beneficial to no deal. Finally, most job losses blamed on trade really are due to technology – to the tune of 80% or more. The last issue is trade deficits. Our family runs a huge trade deficit with Costco and Duke Energy. Fortunately, we run a corresponding surplus with Vanguard and Fidelity. We do not have to be in balance with each entity we do business with. Yes, the US runs a trade deficit but it is matched by an investment surplus. The US has 41 straight years with a trade deficit and it has had no adverse impact on our economy. The rise of man did not occur in rugged mountain chains, burning desserts or beside great oceans. It occurred by harbors, navigable waterways and crossroads. The rise of humanity and the creation of wealth inexorably are tied to free trade and so it remains. Adam Smith and Milton Friedman got it exactly right. Americans would be better off if the United States unilaterally abolished all tariffs and trade barriers even if no other country ever reciprocated. If China indeed manipulates its currency, subsidizes exports and employs cheap labor, it is an unleavened blessing for American families to the tune of $2,450 each and every year – and we don’t even have to say “thank you“. The next post presents MLLG’s take on policing in America.
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