Free Trade Makes the USA (and everyone else!) Richer!

As a friend of mine is apt to quote from South Park "They took our Jerrrbbbbbs!!" My missive below is a cautionary note to those of us (like me) that are patriotic to a fault. The anti-free trade movement is the one shit-pile where the "Occupy Whatever" movement and the Tea Party seem to exist happily together. And that should alarm and frighten you. Whatever the Occupy Whatever movement is in favor of is bad for poor people, bad for business, bad for consumers, and bad for the USA. Hell, it's bad for everybody.

A degree in economics is like a ticket to the show. I can't act, but I can attend the premiere. Here goes:

The pricing mechanism is an important part of trade. It provides a signal to producers about what to produce. In the pursuit of profits, it provides an incentive to enter markets where they can make the most, and in order to maximize those profits, strive for efficiency and innovation. The Anti-Free Trade Movement does not seem to care much for efficiency. They think efficiency causes poverty. This is unfortunate, and dead wrong.

The constant desire by producers – in a free trade environment – to win customers, encourages them to invest in new machinery and increase productivity. By increasing productivity and efficiency, prices are cut. As a result, consumers – including those in the poorest countries – are made better off. Moreover, increased efficiency enables wages to rise.

The result is that during the 1990s, 81% of American companies’ foreign investment went to Western Europe, Japan and Canada. These countries have high wages, but because their workforces are highly productive, they win hands down over workers from sub-Saharan Africa. This contradicts all the claims being made by anti-capitalist campaigners about how Western firms only want to invest where they can pay ‘sweatshop’ wages. 

Africa’s share of world trade halved between 1980 and 2000. Despite having 10% of the world’s population, it now only accounts for 1% of world trade. This shows that trade is not a race to where wages and conditions are lowest.

Anti-free traders rarely celebrate on the winners. We hear a great deal about how certain coffee farmers are unable to compete, but we are never told to celebrate the success stories in Brazil (where farmers have mechanized) or in Vietnam where producers are very efficient. Both countries are catching up with the West. Nor do we hear much celebration of countries like Hong Kong or South Korea or the other Asian Tiger economies.

The fact is that free trade – through an invisible hand – encourages production towards the countries that are best at producing. I am not aware of any mobile phones being manufactured in the USA, because other countries are better at that. On the other hand, the intellectual design of the microprocessor in three-quarters of the world’s mobile phones comes from a company based in Cambridge, England. 

Traditional electronics manufacturers in the USA have been decimated – and yet, we are a richer country that at any point in our past, and there are more jobs in the USA than ever before. 

It is a mistake for governments to assume that trying to keep everyone in traditional jobs is good for a country. While the Anti-Free Trade Movement likes the idea of a static world where everyone stays producing the same things, those countries that do well are those that are continually changing and adapting to market signals. This is what increasingly China is doing and that is why it is growing.

So there you have it. Again, stark in its reality, and cold in its application (Professor Archer taught me that line in Econ 334 20 year ago and I still use it today!)

Free trade makes America stronger and builds for better jobs and more of them. Free trade keeps quality up and prices low for consumers and their families. Free trade creates wealth in smaller countries and creates for a more efficient use of our resources. (there – I threw a bone at the greenies!)

It should be “They saved our Jerbbbbbs!”