Why Is Trade So Hard To Understand?…

So yesterday I tweeted out what I thought was a pretty clear economic point: the real threat to American workers employed in the domestic production of goods doesn’t come from trade, rather, it comes from technology.

The screengrabs come from this article, a great piece by Rex Nutting that points out a lot of misconceptions regarding U.S. manufacturing. The key takeaway from the article (as evidenced by the headline) is that contrary to popular belief, we are actually producing more domestically than in the 1980s. Roughly twice as much. At the same time, the total number of people employed in this production has shrunk, so fewer Americans are producing more. In other words, automation, data analytics, and other areas of tech and stats have driven away much of the need for labor and increased per-worker output. That’s a good thing (I don’t actually feel technology is our enemy, that was just a sloppy choice of words on my part), but the reaction to my tweet has largely been ridiculous, and a lot of people are still not sold on the notion that trading more with other countries is good for most, and ultimately all Americans.

I’ve broken down a moral case for free trade here, so I’ll try to avoid rehashing everything that was said in that previous post. But allow me to explain as clearly as possible why more open trade between nations is a good thing:

You engage in trade everyday. When you go to the store and buy an apple, a coke, toothpaste, or whatever, you are exchanging your money for something that the store has, and the store is taking your money in exchange for what it has. Both of you do this voluntarily. It’s an exchange both of you benefit from as well. You are better off having the food, toiletries, furniture, or whatever else you buy, than not having them, because you want to survive, and not live like a savage after all. Without access to these things, your standard of living would be horrible. You’d be living in the forest hunting rabbits. Trade is necessary, because we can’t produce everything we need by ourselves, and those of us who could would be living a bare-bones lifestyle in a cabin somewhere.

The trade you hear about in the news is exactly what you do at the store but on a large scale. It’s American companies buying/selling goods with companies in other countries, trading money for goods and goods for money. Both sides benefit, because if not, why else would they voluntarily agree to participate?

Preventing the free exchange of goods can only hurt us, with minimal exceptions. If, in theory, we all had access to teleportation, and I could shop at any store in the world, would it be moral, or make any sense for the government to dictate that I can only shop at American stores? Why can’t I hop to London or Tokyo, and buy goods from their outlets? Why should I sacrifice my economic freedom and standard of living to “protect” the business of American stores? Reducing my liberty would infinitely reduce the possible transactions I could have engaged in, reducing the total benefit not just to myself but to people around the world.

By importing goods from elsewhere, we are in effect engaging in teleportation to shop from other countries (it just takes time to ship things). And, as shocking as this sounds, they are shopping from us. Not only do they buy goods from us, they buy a TON of services in the form of technology, financial management, healthcare, and more.

If you have a moment, listen to Milton Friedman explain why the supposed “trade deficit” is not something that should concern you. People don’t have to take it from me on this, you can listen to Milton and the vast majority of other economists who agree trade is a good thing.

More to the point, we have a global economy now, and there is no unspilling this milk. There’s very few “American companies” left. Ford, for example, is owned by people all over the world, because it is publicly traded. There aren’t just shareholders in America. When you buy an “American car” your money goes to workers, and owners all over the globe. Same with every other firm on the S&P 500. Same with Sony, Toyota, and other foreign companies. Americans own these supposedly non-American companies as well.

There’s no such thing as “our jobs” either. This collectivist mentality is how a socialist thinks. Jobs do not belong to countries, or even to people. They’re ultimately a temporary arrangement between you and someone who needs work done. It is not yours, or theirs, or anyone’s. It’s a form of trade (labor for pay) that takes place under certain circumstances.

Trade has not led to less employment. During the supposed prime years of “outsourcing” (70s-2000), we saw a slow growth in the labor force participation rate. It is only recently, due to a mix of a bad economy and the baby boomers retiring, that we see a dip in the rate. While trade was ramping up, it was ramping up too:

laborforce

People can perhaps complain over a lack of good jobs, but they are nonetheless available. You just need more than a high school degree nowadays. Acquire skills, and you can get paid better than a simple living wage in many different industries. This reality of needing skills would be true even in a world without trade.

Ultimately, protectionists, even on the right, are people who believe it is okay to limit the economic freedoms of others in pursuit of a forced redistribution of resources. It is not the job of anyone to protect your job. It is your responsibility to compete in the now global economy. So even if limiting our freedom to trade with those outside the U.S. did protect people’s jobs, it would be no different than taxing people more to supplement the incomes of others. Limiting the economic freedoms of some for the sake of others is not “conservative,” cry all you want.

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