Comments on Free Trade
March 21, 2011
THE LATEST DISCUSSION on free trade has been particularly interesting. One reader in that entry made the point that capital raised in offshore industry is reinvested in our economy and leads to further innovation and new industries at home. In response, the reader R.S. writes:
And that productive capital can in future be invested in places that are not the United States, for exactly the same reasons that productive capital has been invested in existing industries, in places that are not the United States, and exactly the same reasons that productive capital is being invested in new industries, in places that are not the United States.
He also writes:
[N]o serious thinker believes that a large nation can maintain itself, defend itself, and prosper as a “service economy.” Shills, hacks, CNBC screechers, Timothy Geithner, professors at George Mason, and Economist leader-writers, yes, but not serious people.
— Comments —
Jeff W. writes:
I have two points: one about the service economy and one about trading with enemies.
Americans cannot prosper in a service economy because services do not bring dollars into the community from outside. If one establishes a factory (such as a Maytag factory) in a rural town (such as Newton, Iowa), a service economy will soon grow up around that factory. Soon there will be restaurants, banks, dentists, lawyers, funeral homes, etc. in that town.
If one goes out into the middle of nowhere, however, and builds fast food restaurants, tanning salons, payday lenders’ offices, and cellphone stores, they all will go broke because they (unlike Maytag) cannot bring money into the community from outside. Without a factory, a mine, oil wells, or farms to bring money in from outside, the service businesses will go broke. My point is, that when we lose our manufacturing, we also lose all the service businesses that depend on that manufacturing. That is why the service economy talk is all nonsense. Service businesses are completely dependent on exporting businesses that can bring dollars into their communities.
We must also consider whether it is wise to trade with enemies. For thousands of years, rulers have prohibited trade with the enemy. Why is that? Is it because those rulers were stupid? Did they not understand the principle of comparative advantage? What if both sides benefit from the transaction?
Those rulers were not stupid. They were survivors who learned from the mistakes of others. They traded with their friends because they wanted their own economy and their friends’ economies to grow strong together. Does it make a difference if a dollar goes to our friends in Australia or our enemies in China? Yes it does. We want to help the Australian economy. In a war, the Australians would help us.
I am in favor of free trade with our friends and minimal trade, or no trade, with our enemies. That has been the policy of wise leaders throughout history. Americans today are learning, and will continue to learn, a harsh lesson about the foolishness of trading with enemies.
Clark Coleman writes:
