Free trade bad?

So, I was perusing facebook the other day, and I noticed that there was one of those advertisements that reside along the upper right section of the screen, and it stated “Free Trade–bad!”  I, of course, marked it as “misleading”, because the idea that free trade is bad is one of the oldest bits of misinformation propogated since the beginning of economic thought.

Seriously, people who say they are for The Free Market, but against Free Trade are a little like people who say that they like the idea of Chastity, but can’t abide the idea of Abstinence.  Free Trade is part and parcel of the Free Market.  You can’t have the latter without the former.  Most people apparently have the erroneous idea that the Free Market, or more popularly, Capitalism, involves primarily manufacturing by huge corporations, which provide Economic Growth by Making Things and Providing Jobs.  Nonsense.  It should be obvious by its name that the Free Market involves primarily trade.  Manufacturing can produce wealth, sure, but it can also destroy wealth, if what is being manufactured is not something that is desired.  Imagine a company that makes soft drinks that taste like skunk spray.  Aside from particularly cruel practical jokers, the product would have no market.  Any resources that went into making Skunk Soda would probably be wasted, diverted from more productive uses.  Resources that would include not just carbontated water and flavor chemicals, but land and buildings, labor, machinery for dispensing the drink into bottles, etc.

Trade, however, if it is non-fraudulent and non-coercive (both conditions for theivery rather than true trade), nearly always creates wealth.  This is because trade is a voluntary agreement in which each party views what he attains as more valuable than what he gives up.  Imagine a sports fanatic who inherits a signed copy of Adam Smith’s Wealth of Nations; meanwhile, an economist somehow acquires an autographed Babe Ruth baseball card.  They trade their respective items.  Which person got the better deal?  They both did, as each went home more satisfied than when he ventured to the marketplace.  All such transactions, and transactions that are not necessarily thought of as “trade” (such as employment), create wealth, because each participant values what he gains more than what he gives up.  I am repeating myself, I know, because it is a crucial point to remember when discussing trade as a concept, and yet it seems to be so easily forgotten.  The default position on trade in the human brain seems to be that a trade is a zero-sum negotiation; one person benefits at the expense of the other.  While it’s possible to have “buyer’s remorse” after a purchase, this does not lessen the wealth-creating effect of a trade, since trades are based on one’s perceptions at the time of the trade.  At the time of the trade, wealth is created, because both parties, say it with me, “value what they gain more than what they give up.”

The argument (more like an accusation than an argument) is made that if we open our country up to free trade, then foreign companies won’t play fair in the marketplace, exporting all their surplus goods to us while enjoying the protection of their governments from our exports to them; after a short while, our manufacturers will all go out of business because they won’t be able to compete with the artificially low prices of governmentally-subsidized foreign goods;  they will “make all the stuff” and we will have to settle for being their serfs, depending on their handouts for our sustenance.  The problem with this argument is that it doesn’t seem to understand the importance of  specialisation.  Adam Smith laid it out in his Wealth of Nations, book 1, when he described how pin factories that set up a system where each employee specialises in one particular task in the pin-making process outproduced those old-school shops where each employee made pins from start to finish.

The same principle applies to regions and nations.  There is no pineapple industry in Arkansas (although they can be grown there: http://sendit.ksla.com/MediaItemView.aspx?id=323225), and cotton farming in Hawaii is, as far as I can tell, nonexistent.  Rather than make each state “self-sufficient”, much better for Arkansans to grow cotton, and Hawaiians to grow pineapples, and the residents of each state trade.

But the interesting thing about international trade is that it consists, not necessarily of different goods, but of similar or basically the same goods with cosmetic differences (like nation one inhabitant trades red cars to nation two inhabitant in exchange for blue cars).  This was the work for which Paul Krugman, an otherwise incorrigable partisan hack, won the “Nobel Prize” for Economics.  Also, the international trade of an industrially developed nation is primarily conducted with other industrially developed nations.

Another thought I would like to address is the idea that trade “steals jobs”; that if persons in another nation are willing to work for substantially lower wages, then domestic corporations are tempted to move operations overseas, our workers are out of work; unemployment, soup lines and mass hysteria are the only possible future for us.  Well, it’s bogus, like the other arguments against free trade.  True, certain types of industries could lower their costs by moving to lower wage regions, but the lower wages must outweigh the added costs of poor infrastructure, highly corrupt governments, low worker productivity, among other things.  As I say, certain industries would be able to do it, others would be much less profitable than if they stayed in the U.S.  Also, even if it is granted that trade destroys domestic jobs, it surely destroys much fewer jobs than technological advances.  There is a term, “Luddite”, that describes people who hate technology.  The historical basis for the term is a group of English workers in the textile industry that went around destroying the new-fangled looms that made artisanship outdated.  We have more or less come to accept technological innovation as a good thing, but there have been serious movements in the past to slow or stop technological innovation in order to “save jobs”.  As silly as that might sound today, it is the very same argument made for slowing or stopping trade.

I’m sure I’m going to write more on this subject in the future, so I’ll give it a rest now.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: