This is an excellent reminder of why free trade works and the fight for it never really ends. The reason for that is very simple. Capital needs secure pricing in order to pay out originating capital costs. Yet it also ends there and the problem is that capital loves to create manufactured capital costs in order to sustain the money stream.
We live in what is largely an artificial debt matrix that works only to secure a long term interest flow with far too little subsidiary wealth production. All this wastage is paid for by inflating the currency.
With this though you will be inoculated from the garbage arguments against free trade trotted out.
The Magic of Free Trade
OCTOBER 22, 2012 by ARTHUR FOULKES
http://fee.org/the_freeman/detail/the-magic-of-free-trade
The fifth graders looked up as I placed a gift on each of their desks.
Each student randomly received a small item, such as candy, a box of
crayons, a magic trick, or a comic book.
After giving each child a gift, I told the students they could each
trade—if they chose—with the person seated to their left or right.
Several made trades; some didn’t. Next I told them they were free to
walk around the room and exchange their gifts. In a moment the room was
filled with excited kids making trades.
When they had sat down, I asked them how many traded. Nearly all had.
How many felt they were better off after their trade? I asked. They all
did.
I was trying to teach these fifth graders a little bit of the magic of
trade—how it allows us to improve our lives while improving the lives of
others. As long as the people trading do so voluntarily, trade is
always a win-win proposition.
But trade is far more magical than this. In the fifth-grade class, all
the things being traded were simply handed out, free. Nothing had to be
produced. In the real world things must be produced, meaning people must
spend time, effort, and other resources producing them.
This is where we find trade’s real magic: It directs people into areas
of work and production where they can make the most at the lowest cost.
That increases the total amount of wealth for everyone.
Think of it this way: If you live in a warm sunny climate, such as
Florida’s, you can grow oranges fairly easily. If you live in the North,
you can grow wheat fairly easily. If you want to grow oranges in the
North, you will need a greenhouse (at least). All the resources you use
to grow a single orange could have been used to grow acres and acres of
wheat. In other words, your “opportunity cost” of growing oranges is
very high. In the South, to grow wheat would be equally costly.
When we are free to trade, we are free to figure out the things we can
produce at the lowest opportunity cost. This is David Ricardo’s law of
comparative advantage. It indicates that trade opportunities will exist
between people and groups even when one side is absolutely more
efficient at everything than the other side. (A $500-an-hour lawyer who
is also an excellent typist will nevertheless hire a $10-an-hour typist
because every hour the lawyer spends typing is an hour in which he could
have made far more money lawyering.)
The larger our scope of trade, the more we can benefit from the
productive gifts and abilities of others. Free trade between North and
South will result in the South producing oranges and the North producing
wheat with plenty of both to go around. If people were not free to
trade, either the North would have no oranges and the South no wheat, or
they would have a lot less of both.
In short, generating wealth requires productive resources, such as
labor, capital, and land. Free trade promotes the discovery of the best
uses of scarce productive resources to make the most goods and services.
Despite its clear advantages, free trade is always under attack by
those who would directly benefit from its restriction. Currently, the
Obama administration is trying hard to promote “clean energy,” such as
wind and solar power, in the United States. Those industries are
receiving big subsidies and are asking for more. At the same time,
ironically, the administration is slapping tariffs on Chinese solar
cells and wind towers, saying they unfairly benefit from Chinese
government subsidies. Domestic solar and wind-tower companies say they
cannot compete with the Chinese producers, who are able to sell their
products at a lower cost.
It’s obvious these tariffs will harm consumers by cutting supply and
increasing domestic costs. They also harm U.S. exporters, because trade
is a two-way street: For the Chinese to buy American goods, they need
American dollars. Fewer imports mean fewer exports. And tariffs harm
everyone else by preventing productive resources from finding their
highest-return, lowest-cost uses.
Free trade truly is needed for an economy to grow and prosper.
According to the 2012 Index of Economic Freedom published by the
Heritage Foundation and The Wall Street Journal, countries with
the most trade freedom (such as Hong Kong, Switzerland, and Canada)
have higher per capita GDPs, lower incidences of hunger, lower rates of
unemployment, and cleaner environments than countries at the bottom of
the trade freedom scale, such as North Korea, Bangladesh, and Zimbabwe.
And countries that tried for decades to be self-sufficient, such as
India, paid a heavy price in stagnant growth and poverty.
What’s more, free trade among nations is a way to promote peaceful
international relations. When individuals are free to trade across
political boundaries, they are more likely to view “foreigners”
positively. The mutual benefits of trade, in other words, can promote
peace.
Ricardo, one of the most influential economists of all time, was among
the first to understand the great value of free trade. In his Principles of Political Economy and Taxation (1817) he summed up the benefits of free international trade nicely:
Under a system of perfectly free commerce, each country naturally devotes its capital and labor to such employments as are most beneficial to each. This pursuit of individual advantage is admirably connected with the universal good of the whole. . . . [It] distributes labor most effectively and most economically; while, by increasing the general mass of productions, it diffuses general benefit, and binds together, by one common tie of interest and intercourse, the universal society of nations throughout the civilized world.
Free trade gets a bad rap from domestic producers and protectionists of
all sorts. But nothing is more important to a growing, dynamic economy
than allowing the basic human right to freely and peacefully exchange
with others.
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