Tag Archives: tarrifs

The One Minute Case For Free Trade

Why not be self-sufficient?

Do you make your own shoes? If you invested some time learning shoemaking, you could save the money you regularly spend on new shoes. What about butter – why not churn your milk? If, like cavemen, everyone was entirely self-sufficient, our monthly spending would be zero. That would be fortunate, because our income would be zero as well, since no one would buy anything from us either.

Everyone outsources

We don’t make everything ourselves because we don’t have the time to produce everything we want. Humans learned long ago that it is beneficial to trade our specialized labor in one field for the labor of others in another, with money as the means of exchange. The difference between the short hardscrabble lives of a hunter-gatherer society and our relatively luxurious existence is due to the gains in efficiency made possible by voluntary exchange.

Everything is outsourced

In “I, Pencil”, Leonard Read writes that there isn’t a single person on earth who knows how to make a pencil. The process of acquiring and assembling the cedar, lacquer, graphite, ferrule, factice, pumice, wax, and glue that compose a pencil are performed by thousands of people all over the world. No one individual is capable of understanding all the processes involved or arranging all the transactions that deliver the necessary supplies to the right step. Voluntary exchange between individuals who know only their immediate trading partners makes possible a process that no central planner could design. None of the participants engage in it because they need a pencil, but because they want the goods and services others produce in order to buy a pencil.

A policy of free trade is beneficial even when it is unilateral

Some isolationists argue that foreigners have “unfair” advantages due to lax labor or environmental regulations, industry subsidies, or restrictions on imports abroad. But such arguments miss the whole point of trade. Capitalism is not a zero-sum game where profits are redistributed from one producer to another. Consumers who buy cheap foreign goods make their money available to buy other products, increasing everyone’s living standards. Domestic producers who lose sales to cheaper foreign goods benefit from increased consumer spending at home, and foreigners with dollars clamoring to spend them on domestic industries.

Governments that subsidize export industries only rob their taxpayers to pay foreign buyers. When France subsidizes steel exports, American steel foundries lose money, but Americans get cheaper consumer goods, and “free” Euros to buy goods that would have belonged to French taxpayers. Ultimately, restrictions on trade based on international borders are arbitrary and just as destructive as internal barriers.

Trade deficits and surpluses are natural states of economic development

The U.S. has a trade deficit when foreigners accept more U.S. dollars for their products than vice versa. If a deficit were to continue indefinitely, Americans would have a permanent supply of “free” foreign goods, since dollars are worthless if they are never spent. Foreigners trade at a deficit with America because they are confident that the we will have products they want sometime in the future. Likewise, we accumulate foreign currency in the belief that foreign goods will be valuable. Surpluses and deficits are natural states that every nation experiences as it varies between being a net recipient of investments or a net investor.

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Filed under Economics, Politics