MAKING SENSE -- January 30, 2012 at 11:00 AM ET
Does the U.S. Actually Benefit From Free Trade?
Image by Yagi Studio/Getty Images.
Paul Solman frequently answers questions from the NewsHour audience on business and economic news on his Making Sen$e page. Here's Monday's query:
Doug Clymer asks: What is the benefit -- if any -- of our free trade agreements? We seem to have lost jobs and industries while our balance of trade remains negative. Meanwhile, other countries are gaming the system to our detriment.
Paul Solman: As I periodically ask in response to questions like yours, Doug, what's the alternative to more rather than less "free" trade? Higher prices on imports, plus protection (from international competition) of U.S. companies. Think those are good ideas in the long run? Likely to maintain our international competitiveness? Adam Smith explained the benefits of borderless trade 236 years ago: we get richer by competing with each other through specialization, because specializing enables us to produce more with less. I.e., we get better at producing what others will buy. The greater the number of competitors, the more specialization, the more innovation, the more technological progress and thus the better we get. The more any country limits that competition, the less specialization in that country and thus in the world overall. Therefor, the less for everyone in the long run and especially for the country setting the limits.
True, there are now legitimate concerns about the ultimate effects of what Smith so devoutly wished for back when: more and more growth, at a sometimes blistering pace. And granted, no one in America lives anywhere nearly as desperately as some Chinese did back then.
"In all great towns," Smith wrote in his 'Inquiry into the Nature and Causes of the Wealth of Nations,' Chinese children "are every night exposed in the street, or drowned like puppies in the water" for lack of food. And he quotes a French travel book on China in which Christian missionary nuns are described as 'baptizing' newborn Chinese girls and "by this means these sad victims of family indigence find eternal life in these same waters in which their short life is snatched from them." Baptizing the babies to death, in other words, so they wouldn't starve.
So granted, the global economy is a whole lot richer today. But do you really want a future in which the rest of the world keeps growing while the U.S. falls behind?