Free Trade is Common

by Don Boudreaux on March 28, 2009

in Trade

Persons who, fancying themselves observant realists, insist that "free trade doesn't exist" have their visions and brains distorted by political boundaries.

It is quite true that national governments almost universally erect barriers that hinder their citizens' freedom to trade with citizens ruled by other national governments.  Some governments erect higher barriers than do other governments.  But, indeed, it's rare to find a national government that doesn't indulge the greed of politically powerful interest groups, as well as the prejudice and economic ignorance of much of its population, with trade barriers.

And yet free trade is ubiquitous.  Freedom to trade generally reigns within political borders.  For example, the 50 U.S. states are united on one very large and very successful free-trade zone.

Karol, Thomas, and I live in Burke, Virginia.  We are free to trade not only with cabbage growers in Culpeper, Virginia, but with cabbage growers in California.  We trade freely with residents of any state, from the Atlantic to the Pacific, from the U.S. border with Canada to the U.S. border with Mexico.  That is, whatever taxes and burdens Uncle Sam might impose (however wisely or foolishly) on economic activity within the U.S., those burdens are nation-wide.  No special space-specific burdens are placed on my and my family's ability to trade with other Americans; no extra tariff or restriction applies to our exchanges with an Alaskan or with a Floridian simply because we do not live in those states.

Practically speaking, therefore, there is free trade throughout the United States.  My family and I routinely buy wine from California and Oregon, oranges and lemons from Florida, computer software from Washington state, maple syrup from Vermont, peaches from South Carolina, television newscasts from New York and Atlanta, lumber from Alabama, spicy sauces from Louisiana, crabs from Maryland.  The list is long.

And yet no one, not even Lou Dobbs, insists that the Boudreaux family would be richer if only the government in Richmond could fine a successful way around the U.S. Constitution and managed to slap stiff tariffs on California wine, Florida citrus fruits, cajun seasoning from Louisiana, and you name it.

Surely the burden of persuasion is on those who would insist that each American would be more prosperous if only his or her state were better able to restrict trade with citizens of other states.  If this burden of persuasion cannot be met, then the case for free international trade is pretty solidly established.

Anyone skeptical of free trade must explain why political borders are economically relevant.  With the exception of pointing to (mostly rather vague and poorly considered) national-defense issues, protectionists have never managed — and I dare say never will manage — to impart genuine economic relevance to political borders.

Because all reasonably prosperous countries today impose no, or only very few, internal restrictions on trade, two facts stand: (1) free trade is in fact quite common, and (2) free trade is beneficial.

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Joe Weisenthal March 28, 2009 at 10:07 am

"Anyone skeptical of free trade must explain why political borders are economically relevant"

This is easy:

- Through transfer payments, we're expected to take care of the less fortunate people WITHIN our borders, rather than outside of our borders.

- Different countries set different priorities with respect to environmental and other societal objectives. This influences what kind of economic activity can be done in one place, and not the other.

- Culture matters. Borders typically represent people of a certain national identity. How people relate towards each other, even economically, is informed by their cultural similarities or differences.

- Education. This kind of goes along with the first point, but citizens are expected to help provide for the education of everyone WITHIN their borders, not without. And given the link between education and economic activity, this is meaningful.

Now, in an economic-textbook-perfect-world, none of this would matter, because the state wouldn't be involved in any of these things. We'd just be all, individual rational actors buying and selling from each other. There'd be no transfer payments, no environmental regulations, nothing like that.

Of course, that country doesn't exist. Or does it? Thus to flat-out state that borders don't is really stating that "borders don't matter in our theoretical world".

But would you admit that in the *actual* world they clearly do matter?

Don Boudreaux March 28, 2009 at 10:20 am

There is absolutely nothing ECONOMICALLY relevant about a political border. The gains-from-trade that make it profitable for me to specialize and trade with my neighbor down the street and fellow Americans in Texas and Tennessee, make it profitable for me to specialize and trade with persons in Canada and China.

At the core of the economic case for free trade is the fact that the larger the market, the greater the extent of the division of labor and the greater the amount of human effort and creativity that all persons can tap into. Political borders do nothing to modify, much less nullify, this fact.

The fact that Americans' culture differs from Japanese culture might affect the specific patterns of trade that emerge between Americans and Japanese, but it doesn't imply, or even suggest, that voluntary trade between persons in America and persons in Japan should be forcibly restricted.

Similarly, the fact that modern governments have welfare states and run schools is utterly irrelevant to the case for free trade. These facts do not change the power of a larger market to deepen the division of labor and to make all persons who voluntarily choose to exchange across national borders better off.

Jason O March 28, 2009 at 10:20 am

Don,
It is sad to me that this must be explained to a country like America. On a side not you did not mention the free trade which occurs between 562 Federally Recognized Indian Tribes and the U.S. and each state. American is a prime example of Free Trade.

It is also important for me to point out that I am an advocate for freer global trade. Let's end foreign aide as it is currently and make a larger free trade zone with the countries which we support currently through the charitable gifts of foreign aide which have such little impact on its intended purpose.

Hail and Support Freer Trade Globally.

Adam March 28, 2009 at 10:21 am

Joe Weisenthal, every single point you just made applies to state, provincial or other sub-national boundaries. Education is usually provided for mostly at the sub-national level. Cultural differences can be enormous (Idaho and Texas vs. California and Vermont).

So how are national borders economically relevant but sub-national ones aren't, by your logic?

Daniel Kuehn March 28, 2009 at 10:42 am

RE: "Persons who, fancying themselves observant realists, insist that "free trade doesn't exist" have their visions and brains distorted by political boundaries."

I think it's worth using the word "trade" as it is commonly understood – both within economics, and by laymen. There's nothing wrong with talking about trade as transactions across political boundaries because that's what most people think of when they think "trade".

But you're right that it should be no different analytically than transactions within political boundaries.

The one exception is if national identities are meaningful for people – then you can't begrudge the fact that they are more concerned about the U.S.'s competitiveness vis a vis China than their concern with a neighboring state.

That's not to say there are justifications for protectionism – but it is absolutely appropriate to differentiate cross-border trade from within border trade, even if the analytical results are the same.

Joe Weisenthal March 28, 2009 at 10:43 am

Of course sub-national borders are relevant.

Why is there higher unemployment in California than in New York?

Why was there a huge housing bubble in California, but a relatively modest one in Oregon?

I could go on. But the point is that borders, even thinly-drawn ones, can have an economic impact.

Now I'll fully acknowledge that none of these points refutes free trade. I'm not trying to do that in any sense right now. But we can't get anywhere in the debate if people insist on this bizarre point that borders have ZERO ECONOMIC IMPACT ON ANYTHING when that's provably false.

seanooski March 28, 2009 at 10:47 am

Sure, free trade is common, unless you wish to trade something that is forbidden.

Joe Weisenthal March 28, 2009 at 10:51 am

So California imposed a huge tax on its residents to cover a budget shortfall. That tax was not levied residents of other states.

Yet we're supposed to believe that state borders have ZERO effect on anything, right?

muirgeo March 28, 2009 at 10:51 am

So ADM (Archer Daniels Midlane) lobbies our government to get farms subsidies so it can flood third world countries markets with their cheap subsidized products driving local farmers into poverty but increasing it's profits is considered "Free trade" and not protectionism because it occurs at the corporate level instead of the state level.

Is that free trade. I think getting rid of state sponsored protectionism and replacing it with Multi-national corporate protectionism and then calling it free trade has many holes in the assumptions that claim it logical.

Also I think comparing "free trade" between the states where everyone follows the same federal labor and environmental stands with free trade between our country and 3rd world countries where the multinationals lobby the local government to prevent similar standards is an argument that might be lacking as a fair comparison.

" The great multinationals are unwilling to face the moral and economic contradictions of their own behavior – producing in low-wage dictatorships and selling to high-wage democracies. Indeed, the striking quality about global enterprises is how easily free-market capitalism puts aside its supposed values in order to do business. The conditions of human freedom do not matter to them so long as the market demand is robust. The absence of freedom, if anything, lends order and efficiency to their operations."

William Greider

Don Boudreaux March 28, 2009 at 10:52 am

Political borders have impact — often very great – but only insofar as they define the limits of government policies, such as taxes, and cultural norms.

My point is that there is nothing economically relevant about political borders as far as trade is concerned. If Joe in Jackson Hole strikes a mutually advantageous deal with Stella in Stillwater, the fact that they live in different states does nothing to render the way we evaluate their trade different from the way we evaluate the trades they each strike with fellow Wyomingans and Oklahomans.

Different tax and regulatory policies (and different cultures) of those two states might well, and likely does, make the economic performance of one state differ, perhaps significantly, from the other.

But whether or not voluntary trade between Wyomingans and Oklahomans is beneficial is a question unaffected by the fact that they live in two different political jurisdictions.

The same reasoning applies to, say, Canadians and Malaysians.

JPIrving March 28, 2009 at 11:13 am

Weisenthal, Geography, and perhaps culture affect economic activity too. Does this affect the division of labor from trade? I don't see anyway around conceding this point.

Seems to me that free trade rewards areas with a comparative advantage in government. Look at U.S. states with the lowest unemployment right now.

Don Boudreaux March 28, 2009 at 11:34 am

Daniel,

The very point is that speaking of, and thinking about, trade as something uniquely international is mistaken. People — individuals — trade. Nations don't trade. And the same general motivations that spark you to trade with the shop down the street spark whatever trade you have with producers in foreign countries.

As for a nation's competitiveness, several of the essays that Paul Krugman wrote before he became a regular columnist for the NY Times speak wisely and eloquently to why that concept is not only meaningless, but misleading. I recommend – highly – his book "Pop Internationalism."

Randy March 28, 2009 at 11:51 am

Borders are not economically relevent.

However;

Borders are politically relevent and trade is politically relevent. Why? Because to politicians everything is relevent. The question is, are politicians relevent?

P.S. Don, Great post.

Don Boudreaux March 28, 2009 at 11:51 am

Muirgeo,

Once again, William Greider is no source of knowledge of the facts of trade. He's an excellent wordsmith but he knows no economics and almost nothing about the actual patterns and consequences of trade.

Please, do read, say, the works of Douglas Irwin or Jagdish Bhagwati if you wish to improve your knowledge of the facts.

And I don't understand your claim that successful lobbying of Uncle Sam by Archer-Daniels-Midland somehow "get[s] rid of state sponsored protectionism and replac[es] it with Multi-national corporate protectionism." ADM can extract its unjustifiable subsidies only through the state. If Uncle Sam refused, as he ought, to grant such subsidies, ADM wouldn't get any such subsidies.

You write as if Russ and I support such subsidies. We emphatically, unequivocally, and unconditionally oppose such subsidies. I challenge you to find a single instance in any of my writings, on this blog or elsewhere, in which I endorse or applaud such subsidies.

Now, as for such subsidies hurting the peoples of other countries, they don't. By making food less costly for foreigners, such subsidies benefit these foreigners. They are benefited at the expense of the American taxpayer.

Yes, of course such subsidized foods put some foreign farmers out of work — but the cost of food in those countries is lower to the denizens of those countries no less than it would be if ADM's low prices were exclusively the result of improved efficiency of operation of ADM.

IF American subsidies to the likes of ADM in fact make food less costly to denizens of foreign countries, then those persons are helped, not hurt, by such subsidies. But I oppose the subsidies because Uncle Sam has no business taxing me, you, or other Americans to drive ADM's costs artificially low (and, in consequence, artificially raise the cost of producing some other goods and services in the U.S.)

Randy March 28, 2009 at 11:53 am

Make that relevant. At least I was consistent…

muirgeo March 28, 2009 at 11:56 am

People — individuals — trade. Nations don't trade.
Posted by: Don Boudreaux

I don't feel like I'm trading with a Chinese person when I buy something from Walmart. Nations nor people trade…. multinational corporations do and they set the rules.

Don Boudreaux March 28, 2009 at 12:07 pm

Muirgeo,

Does Wal-Mart hit you with a tracker beam or round you up with hoodlums to force you into its stores? Does the Chinese government do so?

Pingry March 28, 2009 at 12:14 pm

I, for one, am incredibly grateful for free trade in New York City.

The city is so densely populated that we have an incredible comparative disadvantage in growing food, producing cars and drilling for crude oil.

But of course, with our comparative advantage in areas like fashion, finance, law, arts, business, culture, education and media, we can trade to obtain the the best of anything in the world.

Comparative advantage, of course, is based on the opportunity costs of production, not the absolute costs of production. In this case, even within the city, the Bronx has a comparative advantage in baseball (Yankees) while Queens has a comparative disadvantage in baseball (Mets)!

Don Boudreaux March 28, 2009 at 12:14 pm

Muirgeo,

You are a great fan of government, at least democratically elected ones such as we have here in the USA.

You often write as if such government accurately reflect and implement the will of the people.

So I ask: if Uncle Sam grants special privileges to Archer-Daniels-Midland (or to any other corporation), surely, in your worldview, that's not to be criticized as it is the oracle of We the People doing the bidding of We the People?

But if you're correct that multinational corporations get such pernicious influence and power over us through their lobbying efforts, then what becomes of your rosy view of democratically elected governments?

Michael Smith March 28, 2009 at 12:15 pm

Muirgeo wrote:

I don't feel like I'm trading with a Chinese person when I buy something from Walmart. Nations nor people trade…. multinational corporations do and they set the rules.

When you make a purchase at Walmart, you’ve engaged in a trade with an organization. An organization of what? An organization of people — comprising employees, managers, shareholders, etc. — but people nonetheless.

T L Holaday March 28, 2009 at 12:23 pm

(Part one)

1. Market participants truck, barter, and exchange within a framework of laws, traditions, technology, and the natural environment.

2. Because changes in laws and traditions made by policy makers, changes in technology made by inventors, and changes in the natural environment such as an inundation or drought do not affect all market participants equally, these changes create economic winners and losers.

3. It is correct for market participants to view as a threat a change in policy, tradition, or technology which will make them economic losers.

T L HoladayT March 28, 2009 at 12:24 pm

(Part two)

4. A great many market participants consider it legitimate to use violence in self-defense, even if that violence disrupts the market and makes the economic totality worse off.

5. When they are within its political boundaries, the state has the power to compensate economic losers by confiscating the gains of economic winners and distributing them in some mix of direct payments to economic losers and the purchase of public goods.

6. Market participants within an orderly state act as if they trust the state to use these powers so that economic losses threatened by changes in policy, tradition, and technology will be at worst threats to well-being, and not existential threats.

Conclusion

Taxes, regulations, transfer payments, and the provision of public goods within the political boundaries are the economic equivalents of tariffs and subsidies. Political boundaries are relevant economically.

Historical Note:The Benelux Parliament, originally referred to as the Interpariliamentary Consultive Council, was formed in 1955; the treaty establishing the Benelux Customs Union followed in 1958.

Sam Grove March 28, 2009 at 12:30 pm

Got a day off, Don?

hanmeng March 28, 2009 at 12:32 pm

Locavores may yet put an end to free trade within the United States, by requiring consumers to eat local. And aren't communities who resist certain companies setting up shop (big cities vs. big box retailers) also engaging in protectionism?

Martin Brock March 28, 2009 at 1:03 pm

… national governments almost universally erect barriers that hinder their citizens' freedom to trade with citizens ruled by other national governments.

Almost? Name one that doesn't. Your statement sounds to me a lot like "free trade doesn't exist".

And yet free trade is ubiquitous.

No. That's regulated trade. Regulated trade is the trade occurring within barriers that states universally erect.

Freedom to trade generally reigns within political borders.

If trade is so free within the borders of the U.S., I wonder why we're constantly debating the myriad of market regulations here. If trade is so free, why are you continually telling us that the current "crisis" is a product of these regulations?

For example, the 50 U.S. states are united on one very large and very successful free-trade zone.

Trade across U.S. state borders isn't heavily regulated, per se, because U.S. states are only administrative districts. The administrators don't much regulate across these administrative borders, but they regulate trade in countless other ways. For example, they bail out AIG but not Bear Stearns. States don't much regulate trade between red haired and black haired people either, because … why would they?

Practically speaking, therefore, there is free trade throughout the United States.

No. Trade regulation in the U.S. does not much distinguish between residents of the different administrative regions called "states", any more than it regulates trade between persons based on their religion.

Of course, these administrative regions are not "states" in the sense that libertarians often use the word, i.e. they aren't central authorities with an effective monopoly of force. Lincoln established this fact well enough in 1865.

… slap stiff tariffs on California wine …

The article we're discussing doesn't address tariffs. It addresses subsidies. You might be richer if the government in Richmond somehow managed to stop the U.S. government from subsidizing Iowa ethanol.

Because all reasonably prosperous countries today impose no, or only very few, internal restrictions on trade, two facts stand: (1) free trade is in fact quite common, and (2) free trade is beneficial.

Reasonably prosperous countries impose countless restrictions on trade. They just don't restrict it between persons living in different administrative areas or between brunettes and blonds or between blue eyed and brown eyed people or between Baptists and Methodists.

Don Boudreaux March 28, 2009 at 1:07 pm

Muirgeo,

Do you really believe that the only reason third-world countries don't have environmental standards as strict as those in force today in the U.S. is because their governments are lobbied by multinational corporations?

If so, do you believe that the reason Uncle Sam imposed fewer environmental regulations in say, 1860 or 1960 is because Uncle Sam was lobbied by corporations not to impose such standards?

Do you believe that the fact that the environmental standards that are in force today in the US are lower than they will be in, say, the year 2109 is explained by lobbying by corporations? That is, do you believe that, absent such lobbying, the environmental standards implemented today by Uncle Sam would be what they are likely to be in 2109?

Nothing is free, amigo, not even a cleaner environment. Efforts to clean the environment are costly, and like all costly goods, the amounts of it consumed are determined both by the value of what must be given up to get this good and by the wealth of the persons who demand this good.

All other things equal, a lower cost of achieving X-amount of environmental cleanliness will result in a greater likelihood of that amount of cleanliness being chosen. Also, all other things equal, the wealthier are the choosers, the higher will be their demand for environmental cleanliness.

The take-way point is that there is no scientifically determinable "correct" amount of cleanliness or pollution reduction. Any amount that can, on some plausible construction, be accurately labeled "correct" today for Americans is highly unlikely to be correct today for Albanians or the Chinese or Nigerians – or correct tomorrow for Americans.

Note also that often differences in enforced MEANS of achieving pollution reduction are mistaken for differences in aimed-for OUTCOMES of pollution reduction.

Don Boudreaux March 28, 2009 at 1:13 pm

Martin,

I appreciate and learn from your contrarianness. But the term "free trade" refers to trade unhampered by government merely because of the geographic location or nationality of producers and consumers.

Of course I don't claim that trade in the US isn't regulated. It is, quite a lot. And much, likely most, of this regulation is harmful.

But there are no special taxes or other burdens placed by government on me if I choose to buy my beans or biscuits from an Ohioan rather than from a fellow Virginian.

Ike March 28, 2009 at 1:28 pm

muirgeo –

Multi-national corporations DON'T trade. They exist outside of those boundaries.

They exist because they emerge to fill a need. There is an abundance of product here, and and abundance of demand for it there. The multi-national corporation does not dictate WHERE those imbalances occur. The multi-national emerges to ease that imbalance, making both places richer in the bargain.

You have in this instance put the cart before the horse.

Daniel Kuehn March 28, 2009 at 1:29 pm

Don -
RE: "The very point is that speaking of, and thinking about, trade as something uniquely international is mistaken. People — individuals — trade. Nations don't trade."

Don't mistake me to be disagreeing with you. I'm only saying that thinking of trade as international is NOT mistaken, only insofar as the word "trade" brings images to people minds of trade across national boundaries (of course nations don't trade – but individuals trade across national boundaries).

As long as national boundaries are important to people, distinguishing "international trade" from other types of trade should be important. And within-nation trade sometimes takes this character as well. Probably 95% of my wine cellar is composed of Virginia wines because of a certain chauvanism I have about Virginia wines.

I don't mean to argue with anything you're saying about trade – simply pointing out that precisely because national identity is important to people, speaking of "trade" as international remains legitimate.

Dave_S March 28, 2009 at 1:38 pm

re: Joe
It isn't that political borders don't have economic repercussions — as you mention, political policies enacted by various sovereign governments can have large impacts on unemployment, business climate, etc.

But that isn't the question at hand. Any restriction on trade enacted by a government is ultimately a restriction on an individual's choice to engage in commerce with whomever he pleases. In that sense, there is no economic relevance to political borders. That is, if I prefer wine from California or wine from Argentina, the political borders are not economically relevant. The only justification for restricting my wine choices is California wine producers influencing the government to restrict my choices in order to force me to choose their product over what I might prefer.

Dave_S March 28, 2009 at 1:41 pm

re: Daniel

There is a big difference between personal distinction and political or government distinction. Your preference for Virginia wines is no limitation on trade so long as you don't persuade the government to provide restrictions to my preference for malbecs from, say, Argentina. And, in your preference for VA wines, you're not exhibiting a "national identity" but rather an even more localized preference.

Sam Grove March 28, 2009 at 1:45 pm

Political boundaries are irrelevant to the benefits of trade.

This does not say that political boundaries are irrelevant to trade, because politics affects trade.

What Don is saying is that the benefits of trade are not altered when it occurs across political boundaries.

Martin Brock March 28, 2009 at 1:47 pm

… "free trade" refers to trade unhampered by government merely because of the geographic location or nationality …

I concede that the term has this specialized usage, but Carney himself calls concern for this free trade "admirable". His only point seems to be that politicians, corporate officers and lobbyists only mouth "free trade" anyway.

I'm probably as radical a free trader as you, but I also advocate unilateral nuclear disarmament, even if an adversarial state has nuclear weapons, even if it drops a nuke on my territory. I also thought we should have done nothing after 9/11, besides a limited effort to apprehend individuals directly responsible for the attack.

But most people thought otherwise. He doesn't say so, but Carney possibly believes that a trade war is always ongoing and that unilateral disarmament in a trade war is not the best policy, even conceding that the weapons can only be destructive.

True_Liberal March 28, 2009 at 1:52 pm

"And yet free trade is ubiquitous. Freedom to trade generally reigns within political borders. For example, the 50 U.S. states are united on one very large and very successful free-trade zone."

Well, yes and no. If my trade is not doing well in one state, I am free to move to another state without a passport, applying for immigration, etc. just to pursue a standard of living. That makes freedom of choice successful.

Same is not true when crossing national borders!

Daniel Kuehn March 28, 2009 at 2:15 pm

Sam and Dave –
To repeat, don't take me to be advocating protectionism. I'm just saying that even knowing the benefits of trade, it's quite reasonable to think about international trade and sub-national trade separately, precisely because we react to neighboring countries differently than we react to neighboring states.

I wasn't coming anywhere close to making an argument that the benefits of trade are different – just that it's reasonable to talk about the two types of trade separately.

Crusader March 28, 2009 at 2:21 pm

What is the point in arguing with muirduck? He just sticks words in your mouth over and over again. Somebody that rude doesn't deserve a response. When will we get registration and ban muirduck forever? At least Daniel, Joe and Martin don't engage in ad hominems and straw man tactics.

Sam Grove March 28, 2009 at 2:21 pm

To repeat, don't take me to be advocating protectionism.

I did not think you were. I have read your statements and remember.

I was just trying to clarify the distinction that other posts seemed to be arguing over.

You can even take my distinction in support of your statement.

We think of it differently, not because of political boundaries, but because of politics.

Politics divides people, trade harmonizes people.

Don Boudreaux March 28, 2009 at 2:27 pm

Daniel,

I do not deny that, as you say, "we react to neighboring countries differently than we react to neighboring states." This difference in reaction is precisely the devil to be slain.

And because words matter, it's helpful to insist that "trade" that occurs between an American and an Armenian is no different than is trade that occurs between an Arkansasian and an Arizonan.

Acad Ronin March 28, 2009 at 2:47 pm

If I recall my college US history correctly, we tried interstate tariffs among the US states during the period of the Articles of Confederation. The reason we have the interstate commerce clause of the US Constitution was precisely because the drafters of the Constitution saw, on the basis of immediate experience, that that was a poor policy. They did give the US Congress the authority to levy tariffs rather than requiring free trade with the world. This was something of a mistake as tariff arguments contributed greatly to the coming of the Civil War, but was probably a compromise given the lack of alternative sources of Federal income at the time.

Daniel Kuehn March 28, 2009 at 3:28 pm

don and Sam -
RE: "Politics divides people, trade harmonizes people."
and
RE: "This difference in reaction is precisely the devil to be slain."

I disagree with Sam's attribution and Don's solution. The world is far bigger than economics and politics. I think in most cases we look at the Chinese differently than we look at other Americans, not because we have a negative view of the Chinese (although some obviously do), but because we have a very positive view of other Americans, with whom we feel we have more in common. I don't have many Virginia wines because they are produced better than California wines – I have them because I will pay a premium to know that I'm purchasing from wineries where I know and have met the wine maker or the staff. I try to buy American (that's REALLY tough if you've ever tried it) not because I have anything against Chinese workers, but because I like to buy from American workers and factories.

You don't need to have animosities to distinguish between nations, and you don't have to derive those distinctions from politics either.

Daan March 28, 2009 at 3:31 pm

I agree that total welfare increases under free trade.

But the problem lies at the incentives of PEOPLE. People live on average 80 years and only work up till their sixties or seventies.

We know that a transition fase from restricted trade to free tade is painful for some individuals.

Some people will loose their job and will not live long a enough to reap the benefits.

So unfortunately, for some people it can be completely rational to fight free trade, and it can thus be completely rational for people to start interest groups to try to influence trade policy.

So yes, fighting free trade can be economically relevent for individuals no matter wheter there are political borders at play.

So you do not have to proof that political borders are economically relevent to be against free trade.

But i do agree Don that it would be beneficial on avarage if politicians hold your view instead of the view of the local steal worker. But in a democracy every vote is equal.

Daan

Daniel Kuehn March 28, 2009 at 3:38 pm

Don -
RE: "And because words matter, it's helpful to insist that "trade" that occurs between an American and an Armenian is no different than is trade that occurs between an Arkansasian and an Arizonan."

In many ways it is no different. And in terms of our analysis of the benefits of trade, I think we'll find that. But as long as I and others look at an Armenian differently from an Arkansasian (and I likely always will) – you don't harm my understanding of trade to speak of the two types of trade differently. There is no "devil" to slay – my different reaction to the two is not a fault, in my mind.

There are also people out there who may see a role for domestic subsidy of industry. I usually don't see this as appropriate, but who knows – if a new technology were to emerge I could stomach a federal subsidy or two for it. Your desire to "slay the devil" presupposes that even this type of export subsidy – which is based in national preferences and priorities rather than a misunderstanding of the benefits of trade in general – is always going to be inappropriate.

We all see devils in different places. National sympathies may have been destructive over time, but they have also been a great source of pride and collective action. And at the very least they are an expression of an entirely natural sense of devotion to kith and kin. While it may make sense to demonize protectionism, I don't think those national sympathies have to be the "devils" that you suppose they are.

Henry Harrison March 28, 2009 at 3:48 pm

Weisenthal's claim was that "free trade doesn't exist." Don claims that it does, and uses inter-state trade in the U.S. as examples.

I guess when all else fails, go after the semantics. Weisenthal's point was clearly, explicitly, exclusively focused on international trade, in the same context as almost everyone uses "free trade."

Imagine if I said, "Americans really love football." Don might reply, "No they don't! Look at these television viewing statistics for the 2004 World Cup," referring, of course, to the international soccer tournament. But that wouldn't be an effective reply.

Many words and phrases have multiple meanings. But when the meaning is clear within an argument, it isn't a very good retort to attack the argument as if it meant something else entirely. In fact, to do so is almost, dare I say, disingenuous.

Don Boudreaux March 28, 2009 at 4:10 pm

People trade. ONLY people trade.

If trade is understood to be only that which takes place across political borders, then pointing out that (1) nearly all such trade is burdened with artificial restraints imposed by governments, and (2) that people in many places in the world, such as the U.S., nevertheless continue to enjoy a great deal of prosperity, then it is too easy to conclude that restricting opportunities to trade isn't terribly harmful.

That conclusion would be mistaken. Because so much trade is free, this freedom (especially in large countries such as the US) generates prosperity in precisely the same ways and for exactly the same reasons that trade between citizens of different countries generates prosperity. The location and nationalities of traders is utterly irrelevant as far as there being gains from trade to be exploited goes.

It's unfortunate that there are any restrictions on trade, intranational and international.

And I continue to understand that allowing the existence of political borders to play the major role that, alas, it plays today in framing the discussion of trade is detrimental to the cause of freeing trade internationally.

Healthy Markup March 28, 2009 at 5:27 pm

"I think in most cases we look at the Chinese differently than we look at other Americans, not because we have a negative view of the Chinese (although some obviously do), but because we have a very positive view of other Americans, with whom we feel we have more in common. I don't have many Virginia wines because they are produced better than California wines – I have them because I will pay a premium to know that I'm purchasing from wineries where I know and have met the wine maker or the staff."

Protecting US producers of goods is a sign that one hates other Americans. Americans who would choose cheaper imports than they would otherwise get from the US are made poorer by these restraints of trade. It doesn't help US steel users if a tariff is placed on foreign steel (thank you freetrader-Bush); it doesn't help US car shoppers if high tariffs on foreign goods push them toward UAW-built dreck; it doesn't help broke-ass Wal-Mart shoppers if populists raise prices for those stores because of Mom-And-Pop stories.

http://www.econtalk.org/archives/2006/09/legislators_vs.html

Regarding wine chauvinism: limousine liberal calculations aren't relevant to lowest quintile families.

Finally, who cares if US wages fall if everything Americans buy instead become cheaper through free trade without dangerous, expensive govt intervention. Oh yeah, govt types and statists.

Sam Grove March 28, 2009 at 5:36 pm

National sympathies may have been destructive over time, but they have also been a great source of pride and collective action.

And the former often springs from the latter.

RE: "Politics divides people, trade harmonizes people."

Why is it that I can drive across the country and visit anybody I want without interference, but if I want to visit, say somebody in Cuba, it becomes MUCH more difficult?

Politics.

Why are "liberals" and conservatives at odds?

Politics

Why are Jews and Arabs often at each others throats?

Politics

What divides the peoples of different countries?

Political boundaries.

I'm not saying that's the only division that occurs among peoples, but it's the only realm where divisions are codified in law.

Henry Harrison March 28, 2009 at 6:40 pm

Yes, people trade and only people trade. But when one refers to "free trade," one is generally – no, almost always – referring to trade across international borders. Sometimes we'll refer to a licensing requirement or something as "protectionist," but generally even that term is reserved for discussions about international trade.

Weisenthal's point, as far as I can tell, is that we don't need completely free trade to have prosperity, because we are prosperous and we don't have free trade – wait, let me clarify that: I mean free trade across international borders). He points that out to prove a different point, which is that economists and other free trade (across international boundaries) advocates often become hysterical at the prospect of even a small tariff, even though the existence of such tariffs doesn't prevent material prosperity.

Of course, maybe we'd be even more prosperous if trade were even freer (I'm referring to trade across international borders). I think we would be. But it's – waht's the word? – disingenuous to argue that without completely free trade – sorry, free trade across international borders – we'd all be incredibly poor. That's obviously not true, and I think that's all Weisenthal was getting at.

LowcountryJoe March 28, 2009 at 6:53 pm

I don't feel like I'm trading with a Chinese person when I buy something from Walmart. ~ muirgeo

You don't. You're like three or more transactions removed from the foreign exporter. Tell me that you understand this?

Nations nor people trade…. multinational corporations do and they set the rules.

There are trades that occur that do not involve multinational corporations. And multination corporations are managed by people; they do not run robotically on auto-pilot.

SheetWise March 28, 2009 at 8:21 pm

And we haven't even considered the law. Since International trades require an International transfer of funds — the Government (U.S. primarily) has set up a lot of barriers.

Trade within the U.S. works smoothly because there is general agreement on the laws, how they will be enforced, and what remedies can legally be pursued. International trade is not easy if you don't have an agent at both ends of the trade. In the U.S., that's not necessary.

When foreign jurisdictions attempt to offer financial services that will facilitate trade, the U.S. (actually the entire OECD) refers to it as unfair competition. That's a huge transaction cost, and limits trade.

brotio March 28, 2009 at 11:25 pm

"So ADM (Archer Daniels Midlane) lobbies our government to get farms subsidies so it can flood third world countries markets with their cheap subsidized products…" – VI Mierduck

Mierduck is on record on this blog of supporting farm subsidies for ADM, because ADM makes ethanol, and His Holiness: The Divine Prophet Algore I has decreed, "Ethanol is safer for Mother Gaia than gasoline, because ethanol comes from Mother Gaia, and gasoline comes from… well, gasoline comes from … Goddammit! It doesn't matter where gasoline comes from! Just give your tax money to ADM and shut up!"

Mierduck is a hypocrite. Mierduck supports corporate welfare while claiming that he does not.

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