Dr. Matthew Ladner

Tear Down This Wall: Why Everyone Wins When We Remove Trade Barriers

Jobs & Economy
May 1, 2015

Dr. Matthew Ladner

Trade matters. The dizzying array of countries that fill in the blank on the “Made in ______” tags attached to everything we buy proves that. This is currently a hotly debated issue in Congress, and we all ought to care deeply what they decide: because it will affect us all as consumers. In the last 30 years, nowhere has seen both the disruption and benefits of trade more than the Upstate of South Carolina.  Once the textile capital of the world, now South Carolina’s Upstate is a thriving hub of international manufacturing…and the future has never looked brighter. (In fact, since January 2011, manufacturing jobs in South Carolina have grown at 13.5 percent, nearly double the 7 percent average of our Southeastern neighbors, with a record high $29.7 billion in merchandise exports last year.) The more freely we can trade, the more everyone wins. Albert Einstein said “Everything that is really great and inspiring is created by the individual who can labor in freedom.” America became a success, both politically and economically, because it was a beacon of freedom in a world of restriction. In light of the debate in Congress regarding free trade agreements, let’s take a look at the litany of reasons free trade is an economic no brainer.

  • Better Products: Free trade results in the increased circulation of goods around the globe. I’ll never forget a conversation I had with several Japanese exchange students who told me that much of the technology and software making a splash as cutting edge in America had already been widely circulated in Japan for up to a year prior. The more goods are able to circulate thanks to free trade, the more access American’s have to better products.
  • Cheaper Products: Adam Smith’s classic argument in favor of specialization is immensely applicable to free trade. (He illustrates this principle with the pin maker who can make one pin a day by himself, vs four workers specialized in different parts of the process who can together make twenty pins in a day.) In short, everyone benefits when products are made with the greatest efficiency. Free trade levels the economic playing field by eliminating taxes and tarriffs, and allows products to be made more efficiently, which directly correlates to all of us winning when we pay less checking out at the store. (Imagine if individual states had trade barriers within the US, and all the orange juice we drink from Florida had to be grown in green houses in each state. OJ might be a once every few months luxury because it cost so much.)
  • Global Competition: When companies compete for business, and jockey to deliver the best product at the lowest price, we are the real winners. We all instinctively realize this and it’s why companies like Office Depot and Staples run competing specials on computers and school supplies at the start of the school year. They want your business and have to undercut the competition. It is the same with freer trade. When US companies like Ford or GM have to compete with foreign car makers like Toyota or BMW, all the companies are pushed to produce better products at better prices, and as American consumers, we all win.
  • New Markets: Global competition, when encouraged by free trade, is a boon to many US industries. Many other countries don’t have the infrastructure or technology to compete with US businesses, and the more freely US companies can export their products overseas, the more they can grow. Lowering trade barriers can dramatically increase US company’s access to the global market.
  • Increased Investment: When companies see demand for their products increase, they are more likely to invest in expanding their operations. This directly and indirectly creates new jobs and revitalizes local economies.
  • Increased Income: As many American industries expand to respond to increased global demand fostered by lowered trade restrictions, wages for workers in those industries also increase. Why do even menial laborers in the energy industry often make dizzying salaries? It’s because energy production can be an intensely profitable undertaking. The more profitable US companies spurred on by international markets become, the more the workers in those industries benefit.
  • Increased Savings: Those that earn more are able to save more. That is a simple reality. Similarly, those that have to spend less on necessities because costs have fallen due to freer trade also have the ability to save more. Either way, everyone wins.
  • Economic Expansion: No matter what economic camp you identify with, and whether you identify economic expansion based on increased spending, saving, or production, freer trade fosters all those things. Citizen have access to cheaper products, so some are more likely to spend. Others are more likely to sidestep the temptation to spend more and save more thanks to cheaper products. Those that see their salaries increase have more income with which to both save and spend more. US companies that see their global market share increase ramp up production to respond to increased demand. All these things lead to increased GDP, job creation, and national wealth: all the key ingredients in economic expansion.
  • Higher Standard of Living: What is the result of American’s having access to better products than ever before, at lower prices than ever before? The standard of living increases for all Americans across the board, but especially for the very poorest. Any time there’s a reduction in the price of goods, they are the ones who are most positively impacted. For the middle class, maybe the $400 that a family was going to spend on a TV buys them a higher quality TV. But for the poorest, maybe for the first time, their $40 can buy them a TV second hand that has been given away to make room for the newer models available thanks to trade. In the above scenario, everyone’s standard of living has increased.
  • Decreases Poverty: While this article is primarily concerned with the benefits of free trade to America, one of the often overlooked benefits of free trade is poverty reduction in developing nations. As trade becomes freer, countries on the cusp of real economic breakthrough are often able access American products more readily, develop trade infrastructure, and join the global economy. This leads directly to economic improvements in these countries and ultimately decreases poverty. Free trade helps everybody involved.
  • Job Creation: Economic research has shown that a rising level of imports directly correlates to increased job creation. A perfect example is our very own BMW plant. BMW is a German company, but because we have trade agreements with Germany, they want to produce their cars in America to save on transatlantic shipping costs. As a result we now have a massive industrial operation located in our state that creates thousands of high paying jobs for our citizens. Far from taking US jobs, opening our nation to trade with companies like BMW creates jobs for Americans.

Free Trade is a powerful economic force, and when the tide of trade rises, all boats rise. It’s time for America to continue to lead the way in the global market and open the door to increased prosperity for Americans across the board. It’s time to tear down those walls.

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