Tag Archives: free trade

CEI Podcast for October 20, 2011: Congress Passes Free Trade Agreements

Have a listen here.

CEI Adjunct Fellow Fran Smith, coauthor of the new CEI study “Free Trade without Apology,” talks about the recently passed free trade agreements with Colombia, Panama, and South Korea. The agreements will lower tariffs and other trade barriers between the U.S. and the other countries, and are expected to reap billions of dollars of economic benefits. The agreements also contain a number of trade-unrelated provisions, such as labor and environmental standards. These erode our trading partners’ sovereign lawmaking power, and are best avoided in future agreements.

Don Boudreaux on Trade

This video is a quick primer on trade from George Mason University economics professor (and CEI adjunct) Don Boudreaux, who literally wrote the book about it. Well, a book about it; see also here and here for quality reading on trade, not to mention Fran Smith and Nick DeLong’s new CEI study, “Free Trade without Apology.” Click here if the embedded video doesn’t work.

Free Trade Agreements Don’t Kill Jobs

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.

Why Trade and War Are Different

There is lots of talk about trade wars lately. We especially need to get tough on China, our politicians tell us. Over at The American Spectator‘s AmspecBlog, I highlight why real wars and trade wars are very, very different
. It’s time to put that misguided analogy to rest.

CEI Podcast – October 7, 2010: Trade, Jobs, and Korea

Have a listen here.

CEI Adjunct Fellow Fran Smith talks about the EU-Korea free trade agreement that takes effect next year, and why the US-Korea FTA stalled, to the economy’s detriment. Fran also talks about NAFTA’s impact on jobs, and why imports are a good thing.

Explaining Free Trade in Under Three Minutes

Sometimes, the fastest, most effective way to explain economics is to tell a story. One of the best-done examples is in Steven Landsburg’s book The Armchair Economist, where he tells David Friedman’s “Iowa Car Crop” story to get readers to think about trade (see pp. 197-99).

[T]here are two technologies for producing automobiles in America. One is to manufacture them in Detroit, and the other is to grow them in Iowa.

Okay… how does that work?

First you plant seeds, which are the raw material from which automobiles are constructed. You wait a few months until wheat appears. Then you harvest the wheat, load it onto ships, and sail the ships eastward into the Pacific Ocean. After a few months, the ships reappear with Toyotas on them.

Sounds almost magical. But it happens millions of times every day. The lesson is that trade is about specialization. A farmer doesn’t know how to build a car. But he can still have one by sticking to his specialty – growing wheat. He can trade his surplus to other people who do nothing but specialize in building cars.

This cuts both ways. Most factory workers don’t know a thing about farming. But by concentrating on building cars, they eat far better than if they grew their own wheat. The nature of trade is that everyone wins when they specialize. The only limit on specialization is the size of the market.

Restrictions on trade – tariffs, quotas, antidumping duties — shrink that market. And by shrinking the market, they limit specialization, which is the source of all prosperity. It’s good to grow cars in Iowa.

The lesson doesn’t apply to just wheat and cars. It applies to everything. Tom Palmer from the Atlas Economic Research Foundation makes that clear as day in this excellent video. If you want to learn the meaning of free trade in under three minutes, this is as good as it gets.

Department of Redundancy Department

Fun fact: the federal government has both an International Trade Administration and an International Trade Commission.

Regulation of the Day 89: Purple Dye

Ancient Roman consuls – equivalent to our presidents – wore togas edged in purple to mark their high status. As Republic became Empire, new emperors were said to “ascend to the purple.”

Purple clothing was a status symbol for most of human history. It was the ancient equivalent of the Mercedes-Benz. Originally discovered in the glands of shellfish (reputedly by Heracles’s dog!), it took 12,000 of the creatures to get just 1.5 grams of dye. Purple garments could be as rare and costly as gold in some places.

Modern innovations such as inexpensive synthetic dyes, the Minnesota Vikings, and purple M&Ms have taken away the color’s exotic reputation. But no worry. Federal regulators are doing what they can to bring it back.

Alpinil Industries, a dye manufacturer in India, sells its carbazole violet pigment 23 cheaply. Too cheaply, it seems. Even commoners can afford to buy products colored with their purple hues!

Irate American competitors convinced the government in 2004 to put an anti-dumping duty on Alpinil’s purple dye. That raised the price to match pricey American-made dyes. Purple would once again be reserved for the rich.

Now that the tax has been in place for five years, the Department of Commerce is wrapping up an investigation to see if it has been working as intended. A repeal would be best for consumers. Don’t expect to see it happen, though.

The benefits are concentrated to a few dye manufacturers, who have a strong incentive to lobby to keep the status quo. Meanwhile, the costs are diffused onto millions of consumers, none of whom have much incentive to spend thousands of dollars in an effort to save themselves a few pennies.

Don’t Worry about Trade Deficits

Here’s a letter I sent recently to the New York Daily News:

December 3, 2009

Editor, New York Daily News
450 W. 33rd Street
New York, NY 10001

Washington, D.C.: In his December 3 column, “On jobs front, President Obama needs to show a little audacity,” Errol Louis worries about America’s trade deficit. He shouldn’t.

I run an ongoing trade deficit with my local grocery store. I import food from them every week. They have never purchased a thing from me in return. Even so, we both benefit. I’d rather have their food than my money, and they’d rather have my money than the food on their shelves. This is true even if an international border separates us.

If Mr. Louis is as worried about trade deficits as he says he is, he would never again set foot in a grocery store, start growing his own food, and engage only in barter transactions. If he doesn’t, he is either misinformed, or else he doesn’t really believe what he writes.

Ryan Young
Warren T. Brookes Journalism Fellow
Competitive Enterprise Institute
Washington, D.C.