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June 29, 2016

Trade Is Good and Normal

 

Yesterday, after Donald Trump’s remarkable screed against global trade, I went out to get a sandwich.

I gave the shop what they wanted, my money, and I got what I wanted, a sandwich.

We were both equally well-off, because it was a voluntary exchange of equal value. If I didn’t like the deal, I didn’t have to buy the sandwich. If they didn’t like the deal, they didn’t have to sell me the sandwich.

Moreover, because they are specialists at what they do, they make a far better sandwich than I do. It would cost me far more in time and trouble to try to make an equivalent sandwich for myself. It’s cheaper and more efficient for me to buy from a specialist than to try to do everything myself.

I have a trade deficit with the sandwich shop, as I do with the grocery store, with Best Buy, with the dry cleaners, and with the gas station. The flow of goods between us is very unequal—all the goods flow to me, while all the cash flows to them. But it doesn’t matter. We’re all happy with the arrangements.

And, I’ve noticed, I generally enjoy doing business with the people I trade with. They usually say hello to me and smile at me when I’m there. If they are nasty to me, I’ll choose to trade with someone else.

Trade is a normal, voluntary, good thing that people do, and by and large it is beneficial to both parties. If one party takes advantage of the other, there are laws and rules that govern transactions and provide remedies.

Now, you probably see where I am going with this. “But international trade is different!” you say, or perhaps not you, but Donald Trump would certainly say that. But it really isn’t.

You see, for the most part, other than arms and a few other things, countries don’t actually trade with each other. It’s people, either individually or through businesses, that engage in the vast majority of trade, not countries. And people who trade generally have positive views of those they trade with.

Donald Trump’s trade rhetoric turns all of this on its ear. He talks of those we voluntarily trade with as if they seek to do us harm through trade. He turns them into enemies to be retaliated against. Tariffs are to be imposed, and existing trade agreements—freely negotiated—are to be shredded. This is not only economically wrong, but very harmful.

The effects of these policies, were they to be implemented, would be higher prices to American consumers and frayed international relationships.

Free trade between people who specialize in different things is the natural state of affairs, whether that trade is with someone in another city, state or country.  From an economic standpoint, it makes no difference. And trade agreements provide the rules and remedies should one party try to take advantage of the other.

We thought these things were obvious, but apparently not.


 

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