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Trade Is Trade Is Trade

Here I tilt with a toothpick at a giant windmill:

Mr. O__:

Thanks for the link to Lisa Kahn’s, Lindsay Oldenski’s, and Geunyong Park’s new paper, “Racial and Ethnic Inequality and the China Shock” (which I recently learned of, I think, from Scott Lincicome).

Like you, I find interesting these researchers’ discovery that (as they put it) “[t]he China [trade] shock narrowed the Black-white employment gap by about 15%. While many recent labor market trends have exacerbated Black-white gaps, import competition is a modest offsetting force.” Also like you, I applaud this consequence of increased American trade with China.

These findings are indeed useful evidence against the commonplace assertion that increased trade by Americans with people in lower-wage countries inevitably harms lower-skilled workers in America. Yet I’m prompted here to register an uneasiness that I always experience when encountering such studies.

My uneasiness comes, specifically, from the fact that such studies further the false impression that commercial exchanges that cross political borders – and any economic or social changes sparked by these exchanges – differ categorically from exchanges and changes that occur purely internally to a country.

Changes in trade patterns occur relentlessly, and in a large country such as the United States most such changes are purely domestic. More women enter the workforce – inflation-fueled cuts in minimum wages better enable low-skilled workers to find employment in the above-ground economy – new labor-saving techniques are introduced in the retail industry – income-tax cuts in Louisiana lead to more trade between Louisianians and Iowans – the quality of Virginia wines continues to rise relative to the quality of California wines – American consumers develop stronger preferences for eating apples and weaker preferences for eating oranges. These and countless other such ‘domestic’ economic changes occur daily. Each one destroys some particular jobs and creates other particular jobs. Yet all but a minuscule handful of such domestic economic changes remain unnoticed by the general public, researchers, and policymakers, with even fewer of these changes sparking empirical investigations of their consequences.

The ’cat’ of treating international trade as categorically distinct from domestic trade long ago escaped the ‘bag’ to which I wish it had been securely confined – namely, treating all trade simply as trade, with the recognition that nothing economically relevant arises or is implicated merely because one party to a trade happens to be in a political jurisdiction different from the jurisdiction in which his or her trading partner currently happens to be. And so given that people will continue to classify international trade as a distinct category of trade, studies such as the one you share are worthwhile. I myself will continue to use them when appropriate. But from time to time it’s worthwhile to step back to look at the bigger picture. This picture reveals that trade is trade is trade, with the political or geographic locations of those persons who carry it out being utterly irrelevant for purposes of economic policy.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

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