One of the most vexing issues to economists is how poorly most people understand international trade. Among economists of all stripes, it is well understood that trade increases wealth, reduces poverty and generally makes everyone better off in the long run.
The only real question is whether the total economic benefits are immediately realized or take just a few years to mature.
I believe that the full benefits take a few years to be fully absorbed. This is a fancy way of saying there are some short-term winners and losers. I hasten to add that this is not a majority opinion and is mostly associated with the left wing of economic policy positions.
What flummoxes me is not the academic debate, but the casual discussion about trade. We hear often that nations compete with one another. They do, of course, but we call this competition “war,” not “trade.”
International trade is a wholly cooperative matter, representing activities undertaken by individuals and businesses for their mutual benefit. Trade is the opposite of war. Even when governments subsidize exports (as ours misguidedly does), trade is better than no trade.
Through trade, businesses compete with one another for customers. This lowers prices for consumers and increases variety and choice.
The gains to trade so fully surround us that it is nearly impossible to point out an activity, good or service that is not a better value to consumers as a direct consequence of international trade.
Producers also benefit. Inputs are less expensive because of competition, and “thick markets” with lots of participants develop due to more people consuming a good.
If we live in a golden age of choice and value, why do so many complain about competition?
Firms that cannot compete and workers with outdated skills fail more quickly in a world with trade. While this makes us far wealthier in the long run, those who do not adjust feel pain in the short run.
There is a special name for this process. It is called economic growth.
Places that avoid trade (India 1947-1990s or North Korea today) suffer dismal economic conditions.
Furthermore, Americans are, and well should be, better at adapting than others. We each receive a whopping $110,000 public investment in education. It stands to reason that workers with this level of educational investment should do well when compared to poor residents of China or India.
Moreover, Americans should reflexively understand this. After all, the Commerce Clause to our Constitution makes us the oldest and largest, and therefore richest, free-trade zone in the world.•
Hicks is director of the Center for Business and Economic Research at Ball State University. His column appears weekly. He can be reached at firstname.lastname@example.org.