Free trade has become something of a divisive issue over the years. Domestic workers fear the loss of their jobs. Some activists oppose it because of the potential exploitation of inexpensive labor in foreign countries. And there are even those who claim that free trade is turning over control of the world to multinational corporations.
But in Lesson Six of Thinking Economically, Dr. Arthur Laffer makes a good case that all parties benefit from free, or voluntary, trade. He points out:
“People only agree to trade because they expect to benefit from it. This principle is true whether the trade is between Joe from Brooklyn and Mary from Queens, or if the trade is between Abu from India and Claude from France. The discussion gets emotional when different countries are involved, but the economics remain the same; the laws of supply and demand don’t care about geographical boundary lines.”
He later asks us to “imagine a world without trade. Everyone would have to grow his own food, sew his own clothes, build his own house, and (to be really outlandish) give himself open heart surgery. But once we introduce the possibility of trade, people can specialize in occupations.”
Again, this hold true whether the trade is across counties or across countries.
The paper also debunks the argument that trade deficits are automatically bad for a country. I hope you are enjoying these lessons as much as I am.
– Bill Peacock