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Quotation of the Day…

… is from page 115 of Paul Krugman’s excellent article “What Should Trade Negotiators Negotiate About?” which first appeared in the March 1997 issue of the Journal of Economic Literature (emphasis added):

[I]nternational trade is really just a production technique, a way to produce importables indirectly by first producing exportables, then exchanging them. There will be gains to be had from this technique as long as world relative prices differ from domestic opportunity costs – regardless of the source of that difference. That is, it does not matter from the point of view of the national gains from trade whether other countries have different relative prices because they have different resources, different technologies, different tastes, different labor laws, or different environmental standards. All that matters is that they be different – then we can gain from trading with them.

This way of looking at things, among its other virtues, offers an en passant refutation of the instinctive feeling of most non-economists that a country that imposes strong environmental or labor standards will necessarily experience difficulties when it trades with other coun- tries that are not equally high-minded. The point is that all that matters for the gains from trade are the prices at which you trade – it makes absolutely no difference what forces lie behind those prices.


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