What's the Problem with Trade?

by Don Boudreaux on November 25, 2006

in Trade

A frequent commentor here at the Cafe, Bruce Hall, is convinced that American trade with China ultimately will hurt Americans.

I can’t figure out why, though, Mr. Hall is worried.  His comments, along with his posts at his blog Hall of Record, suggest that he fears that Chinese government policy — for example, the alleged undervaluation of the Chinese yuan — threaten American economic prosperity.

If the Chinese economy continues growing and the Chinese continue to offer to sell things to Americans at prices that Americans find attractive, what’s the problem?  Would it be a problem, for example, if an inexpensive process were discovered for making luxury automobiles out of dirt?  GM, Ford, Toyota, BMW, and other auto producers, and their workers, would suffer for a time — but would such a discovery doom the American economy?  Or suppose that a formula for curing cancer, cystic fibrosis, obesity, impotence, and restless-leg syndrome is discovered, a formula that uses only tap water, salt, and human hair.  Would the discovery of such formula bring economic doom?  Physicians, nurses, hospitals, and pharmaceutical companies would suffer — but would such a discovery be bad for the economy?

Or would it be a problem if, for whatever reason, Microsoft Corp. decides to give away all of its software free of charge for an indefinite — perhaps infinite — period of time?


The fact that existing producers are subject to more and more competition — not only from other firms but from new techniques — is both a sign of economic progress and a source of such progress.

As the Chinese economy grows, as its producers become more efficient (or as the Chinese government continues to subsidize U.S. consumption by pumping resources into some Chinese industries), Americans’ costs of satisfying their desires fall.  What’s the problem?  I simply don’t see it.

Yes, the U.S. economy would be jolted by change if the Chinese are subsidizing their producers and then one day unexpectedly and suddenly stop.  But there’s nothing unique about such unexpected jolts.  The same jolts hit economies when new discoveries are made, when consumer tastes suddenly change.  (Just think of the jolt to Hershey’s, Anheuser-Busch, and other carbohydrate producers when the Atkins Diet became popular!)  Are we to reject artificially inexpensive goods and services merely because one day the subsidies that make them artificially inexpensive might end?

Or perhaps Mr. Hall (and others skeptics of free trade) worry that the Chinese economy will one day reverse course and begin to shrink.  Our "dependence" upon China might then prove dangerous.  Almost anything is possible, but to reject assured improvements today in prosperity because of the (remote) prospect that one of the contributors to that prosperity (China) might tomorrow no longer be an attractive trading partner is a fool’s move.

If Americans are becoming profligate, unproductive, myopic, or otherwise unfit for lasting prosperity, that would truly be a problem (albeit one made less severe by trade with prudent, abstemious, productive, creative, and long-run oriented non-Americans).  But under no plausible set of circumstances is more open trade with foreigners a threat to American prosperity.


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