The Economic Meaninglessness of Political Borders

by Don Boudreaux on February 23, 2007

in Balance of Payments, Trade

Sheldon Richman, of the Foundation for Economic Education, firmly grasps what Adam Smith meant when that Great Scot wrote in The Wealth of Nations the following wise words:

In the foregoing Part of this Chapter I have endeavoured to shew, even upon the principles of the commercial system, how unnecessary it is to lay extraordinary restraints upon the importation of goods from those countries with which the balance of trade is supposed to be disadvantageous.

Nothing, however, can be more absurd than this whole doctrine of the balance of trade, upon which, not only these restraints, but almost all the other regulations of commerce are founded. When two places trade with one another, this doctrine supposes that, if the balance be even, neither of them either loses or gains; but if it leans in any degree to one side, that one of them loses and the other gains in proportion to its declension from the exact equilibrium. Both suppositions are false [emphasis added].

In this essay, Richman wisely asks

What is an export? What is an import? These words are defined in reference to political boundaries of only one kind: national boundaries. If there were no such boundaries, there would  be no exports or imports. But political boundaries are just that. They are not economic boundaries. To the extent that they can, people go about their business as though those boundaries weren’t there. People cross the Canadian-American and Mexican-American borders to transact business every day. If they give them a thought it is only because governments put up barriers patrolled my armed guards who make them wait in line. People learn early in life that they can gain immensely from trade, and with that understanding comes the insight that it doesn’t much matter on which side of a Rand-McNally line your trading partner lives.

So the very concepts imports and exports are founded on an arbitrary construct that has little practical consequence for people’s economic activities. Back in the 1980s, when neomercantilists feared Japan’s economic success at selling us stuff (seems a little crazy now, no?), I used to ask what would happen to the trade deficit if Japan were made the 51st state. Obviously, the deficit would have disappeared because we don’t reckon trade imbalances between states. Why not?

In reality, then, there are no imports and exports. There is only what I make and what everyone else makes. Few people would want to live just on what they themselves could make. Frederic Bastiat pointed out that each of us daily uses products we couldn’t make in isolation in a thousand years. Talk about poor, solitary, nasty, brutish, and short! “What makes this phenomenon stranger still is that the same thing holds true for all men,” Bastiat wrote. “Every one of the members of society has consumed a million times more than he could have produced; yet no one has robbed anyone else.”

This is just another way of saying that the case for free trade is conceded the moment someone eschews [individual] self sufficiency. After that, we’re just haggling over the size of the trade area. But if free trade (read: division of labor) is good, then the bigger the free-trade area the better. Globalization should be the worldwide removal of all barriers to the exchange of goods and services — rather than trade managed through state capitalism and multinational bureaucracies. Unilateral, unconditional free trade is the smartest policy.


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