Trade is going to be a hot issue this summer. Pending free trade agreements with Panama, Colombia, and South Korea might finally pass. Opponents of liberalization are already on the attack.
My colleague Jacque Otto already covered the creative destruction defense of trade today. Over at the Daily Caller, I look at employment data and find out that the labor force has grown by 23 million people since NAFTA passed. Doesn’t sound like a job-killer, does it?
Just as trade doesn’t kill jobs on net, neither does it create them on net. The real advantage of trade is that it allows people to specialize and become more productive. That is how economic growth happens:
When governments lower trade barriers, they allow more people to exchange and to work together. In economics jargon, the size of the relevant market gets bigger. And the bigger the relevant market, the more people can specialize.
Readers familiar with Adam Smith will recognize this as his division of labor. Everyone knows that specialized workers are more productive than jacks of all trades. That’s why Henry Ford’s assembly lines were so much more productive than his competitors’. The same number of people could suddenly produce more cars in less time, because they had a more specialized division of labor.
Workers didn’t have to waste time switching from one task to another. They got very good at their tasks. And because they knew their jobs so well, they were better able to come up with new, better ways of doing them. Rising productivity is how an economy grows. Prosperity doesn’t depend on the number of jobs. It depends on how much stuff workers can create.