Is free trade God’s blessing?
Let’s look at the notorious example that David Ricardo used to support comparative advantage and free trade. He took two countries and two products. England could benefit by specializing in textile production and Portugal could also benefit by specializing in wine production. Ricardo was a British investor and politician. He used these two countries because he was of Portuguese origin.
Ricardo’s effort is respectful. Economic models are helpful because they give us insight into economic reality but they are not reality. We should not take them for real. In reality there are not two countries in the world and they do not produce two products only.
At the time, England and Portugal had much smaller GDP’s. Let’s take todays circumstances. UK’s GDP is a little less than California’s and Portugal’s almost equal to South Carolina’s which the 26th state in terms of economic size. In USA there are 56 states and territories. So, in addition to California and South Carolina, there are 54 more country-like states and territories. A lot of trading could be achieved within states and territories and there would be no need for much trading with the outside world. USA has diversified climate and specialization within the country. In California there is show business and high tech, in New York financial services, in Midwest agriculture, in Texas oil production, in Michigan auto manufacturing etch.
Perhaps there is a certain size where relative economic autarky becomes feasible and that size could be smaller than USA’s. The bigger a market is the more self-sufficient it can be. This is somenting similar to Economic size matters. We are not talking about absolute autarky but relative. There will be trading but less. The same could apply for China and Western EU.
This could also be true for the other economic blocs that may be formed (A pentarchy). Even division or regions in blocs can have a relative autarky to a lesser extent. Off course somebody would have to make a serious research for that and we are not planning on doing it. We are saying that a valid argument could probably be made for relative autarky when we have a GDP like USA’s, China’s and WEU’s.
Trading is something different than travelling, cultural and scientific exchanges, transfer of knowledge, international athletic events, etch. Trade could be unproductive and bad for the environment. A New York resident may find a Chinese made computer cheaper than a California made one. Although there are definitely more transportation costs, the difference in salaries makes up for that. From a productivity point of view, the China made product is unproductive. Probably more human hours were required and more gas or oil was consumed. Ships, airplanes, trucks run on gas or oil.
Speaking of the environment, there two main reasons for environmental damage, overconsumption and overpopulation. Overconsumption is mostly in advanced countries and overpopulation mostly in less advanced countries. Various numbers have been used for World’s optimal population, like 500 million or 1,6 billion. A serious study should be made about that.
Economic growth is based on overconsumption, the creation of needs that are not real. Those who favor open borders, give a message to citizens of poor countries that they can have as many children as they want because most of them can migrate to advanced countries, have a relative comfortable life and sent money home.
We have said that in the case of migration there are two separate issues, filling job vacancies and helping fellow human beings. Ultraglobalists put these together in a package. We deal with them separately. Generally ultragloblists package things. They are either simpletons or take you for simpletons. We keep repeating it. Do not trust them.
We also said that when we have very large economies like USA’s or China’s an argument for relative autarky could be made. We talked about a push approach and transfer of knowledge and expertise. How will this work in Africa when people do not have the money to invest? We do not have schizophrenic approach like ultraglobalists. We do not say on one issue one thing and on another issue the opposite.
American, Australian, Canadian, European companies can invest. Well that is trading someone may say. No, that is not trading. That is foreign direct investment. They can bring profits home. That’s OK. It only takes wire transfer. Money does not come with ships, planes and trucks that burn gas or oil.
Trading is something different than travelling, cultural and scientific exchanges, transfer of knowledge, foreign investment, international athletic events, etch. Ultraglobalists package them together. We deal with each one seperately. Trading involves movement of products from one country to another, it is an export from one country and an import to another.
If an American company makes a factory in Africa with the purpose of selling the products in Africa, it does not involve any trading. Off course, it will not be forbidden to make some exports as well. We have American companies that make factories in China with the purpose of selling the products in USA.
If the products are made in China and sold to USA, that is trading, regardless of whether the company that makes them is Chinese or American. Germans make factories in Mexico to sell products in USA. That involves trading. If they made these factories in USA, it would not involve trading. Products that are made in USA by USA workers are part of USA’s GDP regardless of the where the company that makes them is from.
We are not saying that trading is bad or that it should be eliminated. Ultraglobalists present free trading like God’s blessing on mankind. We are saying that clearly this is not the case. Ultraglobalists say that the more trading the better. We are saying that some trading is good but a lot of trading may not be that good.
Ultraglobalists also like to put you in a black or white dilemma. It is either ultraglobalization or complete isolationism. It is either open borders of completely closed. There is nothing in between. In reality there are very many shades of grey in all instances as we have explained. It’s either completely open markets or fully blown protectionism.
Having open markets could be beneficial. Protecting a sector could be also beneficial. We can have markets that tend towards open but are not completely open. They can be almost open but have with surgical precision certain sectors protected.
We should also distinguish between free trade and trade. In a relative autarky we have less trade. Trade could be free or with restrictions. Free trade does not involve any tarrifs, duties, quotas. Be careful. Ultraglobalists are a very sneaky bunch. To put it correctly some of them are very sneaky and some have no clue whatsoever.