There is something about free trade that scares the dickens out of many ordinary Americans.
It just doesn’t seem to make sense to them that opening American markets to goods and services from other countries could possibly yield a net benefit by creating jobs, increasing productivity, and making Americans overall much wealthier.
After all, if a job that could be done by an American is now being done in India, China, or even Bangladesh, doesn’t that mean one fewer American working?
Well, no, it doesn’t. And the increasing drumbeat against free trade in American politics is one of the most dangerous threats to the American economy since the passage of the Smoot-Hawley act, which helped extend the Great Depression for nearly a decade.
Both economic theory and real world experience have shown that as markets expand, prosperity within those markets grows with them. Just as it makes no sense to limit trade between the States—the Commerce Clause of the Constitution was written precisely to prevent individual States from erecting trade barriers within the Union—it makes just as little sense to artificially limit trade between countries.
The economic theory behind free trade is pretty simple, really: it is based upon the idea of “comparative advantage.” In the United States, for instance, it makes much more sense for some areas of the country to focus on grain production—say the Midwest—than on trying to grow cotton or vegetables. It makes little sense for Vermont to focus on trying to provide its own coal when it can be produced much cheaper in West Virginia. Minnesota will never be the wine capital of the United States.
In essence, comparative advantage is nothing more than “doing what you do best,” which maximizes everybody’s productivity.
There is nothing magical about national borders when it comes to comparative advantage. Resources, education, skills, and other costs of doing business vary widely around the world. As trade increases worldwide, everybody gains access to an ever wider diversity of goods and services being produced by those who can provide them at the lowest cost and highest efficiency.
Efficiency drives productivity, and higher productivity means that luxuries that used to be affordable to only the few become widely available to everybody. Manufacturing in China has helped bring LCD TVs and $39 DVD players to the average American.
So why are people so afraid of free trade?
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