News-Sentinel.com Your Town. Your Voice.
Local Business Search
Stock Summary
Dow17390.52195.1
Nasdaq4630.7464.6
S&P 5002018.0523.4
AEP58.340.07
Comcast55.351
GE25.810.14
ITT Exelis17.850.73
LNC54.761.86
Navistar35.370.51
Raytheon103.880.68
SDI23.010.45
Verizon50.250.35
A COLUMN BY MICHAEL HICKS

International trade is the opposite of war

Tuesday, May 28, 2013 - 12:01 am

One of the most vexing issues to economists is how poorly most people understand international trade. Among economists there is no more fully recognized truth than the benefits of trade. From Milton Friedman to Paul Krugman, and everyone in between, it is well understood that trade increases wealth, reduces poverty and generally makes everyone better off in the long run. The only real question is whether the total economic benefits are immediately realized or take just few years to mature. Based on the evidence, I believe that the full benefits take a few years to be fully absorbed. This is a fancy way of saying there are some short term winners and losers. I hasten to add that this is not a majority opinion and is mostly associated with the left wing of economic policy positions. What flummoxes me is not the academic debate, but the casual discussion about trade.

We hear often that nations compete with one another. They do, of course, but we call this competition “war,” not “trade.” On this holiday weekend, above all others, we should be cautious about how we use language. International trade is a wholly cooperative matter, representing activities undertaken by individuals and businesses for their mutual benefit. Trade is the opposite of war. Even when governments subsidize exports (as ours misguidedly does), trade is better than no trade.

Through trade, businesses compete with one another for customers. This process lowers prices for consumers of all types and increases variety and choice. This makes us better off. The gains through trade so fully surround us in our homes and places of work that it is nearly impossible to point out an activity, good or service that is not a better value to consumers as a direct consequence of international trade.

Producers also benefit. Inputs are less expensive because of competition and “thick markets” with lots of participants due to more people consuming a good. We live in a golden age of choice and value, but why then do so many complain about competition?

Firms that cannot compete and workers with outdated skills fail more quickly in a world with trade. While this makes us far wealthier in the long run, those who do not adjust feel pain in the short run. Without trade, inefficient businesses and poorly trained workers muddle along a bit longer. With trade they must adapt. There is a special name for this process. It is called economic growth.

Places that have avoided trade (say India 1947 - 1990s or North Korea today) suffer dismal economic conditions. Furthermore, Americans are, and well should be, better at adapting than others. We each receive a whopping $110,000 public investment in education. It stands to reason that workers with this level of educational investment we should do well when compared to poor residents of China or India. Moreover, Americans should reflexively understand this. After all, the Commerce Clause in our Constitution makes us the oldest and largest, and therefore richest, free trade zone in the world.

Michael J. Hicks is the director of the Center for Business and Economic Research and an associate professor of economics in the Miller College of Business at Ball State University.