Over the weekend, just for a few hours, I agreed with President Trump on trade policies. He insisted on “No tariffs, no barriers, that’s the way it should be — and no subsidies.” And that is absolutely the way it should be. Allow producers, whoever they may be and wherever they’re from, to compete for our dollars by sating our desires as best they can. In that manner, we get more of our desires sated at the lowest possible cost. This is what the whole economic game is supposed to be about.
This is also the standard free trade position. Actually, it’s the standard non-foolish economic position in general: Let that free market rip and watch as we all get richer. It’s just that there’s no conceptual difference between those outside our own national borders and inside them. Getting better stuff cheaper still makes us richer, whichever side of the line on the map it was made.
Even the heterodox economists (“heterodox” here meaning “what the heck are those people thinking?”) argue that this is still the correct position for an economic leader. It’s the small and poor countries trying to nurture their infant industries that might want a protectionist policy. So, Trump proposes proper and entire free trade among the G-7 and he’s right, this is the way it should be.
As the Financial Times points out, this wasn’t going to last. It didn’t last out the weekend. Monday brought back the usual railing against trade deficits that Trump trots out. Evidence that he’s not understood that argument for trade itself as yet, let alone the point of free trade.
The basic insight is that other people will do some things better than we can. Thus we do what we’re good at, they do what they’re good at, and we swap stuff (with money). By each doing what we’re good at (the really accurate description is what we’re least bad at) there’s more in total, so there’s more to share around in that swapping. We’re all richer — that is, we have more stuff from the same labor.
I do know there are entire libraries on this theory of trade stuff, I’ve even contributed to them, but that previous paragraph really is the whole argument. Everything else is just footnotes to it. And again there’s nothing that changes the argument between who changes the baby’s diapers and who loads the dishwasher and which country the car factory is located in. Trade works the same way at any level of granularity: the household, village, county, state, nation, or continent.
The benefit to us is not that we get to labor in order to produce something for others to enjoy, it’s that we get to enjoy the fruits of the labor of others. It’s the imports that make us richer, not the exports. Buying steak from the supermarket makes me richer than having to eat my homegrown turnips. Again, this scales up from household to nation. Buying what they make is the point of trade, what makes us richer.
So, free trade in the G-7 is a great idea. And the benefits of trade go to the importers. So, therefore, it’s possible to gain all the benefits of that free trade even if we’re the only people in the G-7 doing it. If the U.S. is the only country that abolishes tariffs and barriers, then the U.S. is the place (more accurately, Americans are the people) benefiting from that free trade. Which means that it doesn’t matter what everyone else does. Unilateral free trade is something we can do without anyone else’s agreement and it also makes us richer. So, obviously, we should do it.
This has in fact already been tried. Friedrich Engels (Karl Marx’s buddy) noted that the Industrial Revolution hadn’t benefited the British working classes much. So much that the way in which wages didn’t rise very much for the first hundred years of that industrialization is called the “Engels Pause.” All the money went to the capitalists — the 1 percent, the landlords, the rich bastards. Then in 1846, Britain declared unilateral free trade. No tariffs, no barriers, on anything. Real wages started their rise, the working class — you, me, and Joe Sixpack today — were the people who made out like bandits from it. It’s also you, me, and Joe Sixpack that the economy ought to be run for.
All of which leads to the perfect trade treaty for Trump to present to the G-7.
- No tariffs, barriers, or quotas on any imports into the U.S.
- Imported products will be regulated and taxed exactly the same as domestic.
- You can do what the heck you like.
- Please sign here.
Tim Worstall (@worstall) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a senior fellow at the Adam Smith Institute. You can read all his pieces at The Continental Telegraph.
