Does anyone think Americans would be richer if each of the fifty states had restrictions on trade with the other states?
That’s the interesting question that Martin Wolf, Associate Editor at the Financial Times, asks in his book Why Globalization Works.
The question itself is a valid one. In the US, a product produced in Maine can be sold in New Mexico without any significant problems.
No customs agents inspect the goods. No tariffs are imposed. The resident of Maine trades with the resident of New Mexico no differently than he trades with his fellow state citizens.
In fact, one of the reasons a central government was originally established in the United States was to see to it that no trade restrictions were placed between the various states. It helps explain America’s wealth.
It’s not hard to understand why maximum trade improves human wellbeing.
Just think about your own situation. You are a seller some of the time and a buyer some of the time. You may sell a product, your ideas or your labour. You buy all sorts of things including the products, ideas and labour of others. In other words, you are sometimes a consumer and sometimes a producer.
When you are a consumer, do you benefit by having more competing suppliers in the market or less? Does a greater selection make you better off or do you prefer to have a small number of choices?
Most people realise they are better off with more choices. If you want to see a film, do you prefer there to be several cinemas showing different movies? Only one cinema offering a documentary on the secret life of bugs is not likely to inspire your interest. More choices are better.
And, if you are selling something, do you want more buyers bidding for what you have to offer or fewer? Again, it is pretty self-evident that more buyers are good and more sellers are good.
By increasing the number of possible trades, the chances of you finding one that will make you better off also increases.
Now, go in the other direction. Imagine not just national borders, which restrict trade opportunities by regulating, controlling or taxing them. Imagine the same sort of barriers existing between towns or other communities.
Imagine if every good from outside the region were stopped at the border of your town and a high tax was slapped on them to protect the jobs in your community. Oddly, such a system would more likely destroy jobs than save them and it would impoverish your entire community.
By restricting your chances of finding the product you want at a price you are willing to pay, the bureaucrats are substituting their will for your own. You must pay the prices they find advantageous. You must buy products they prefer and shun those they dislike. Your ability to make decisions that benefit you is severely restricted.
When we close trade off into smaller and smaller areas, the people within those areas become worse off. Poverty increases. People end up living at a more primitive level.
Doing the opposite, by widening the trading area, produces greater wealth. More modern technologies are used. Consumers are better off and so are producers.
If you really do think trade barriers improve your life, why not put more of them into place voluntarily and see if it’s true. Insist on only buying products produced in your own small community and see if your life improves.
In fact, why have a trade relationship with people across town? Why not put up a few barriers to trade internally as well. Restrict trade to only the people on your street or just living in your house. In fact, why even bother to trade with others at all? Wouldn’t that destroy you finding employment to produce the things you need yourself?
“Ah, don’t be daft,” says the protectionist. “If you did that, you’d have to produce everything yourself and no one can do that.”
Precisely. We trade with others to take advantage of what they can produce that we cannot. And what is true for the individual, is true for the city, the state, or the nation.
The Swedes buy oranges from South Africa because Sweden is not very good at producing oranges. Farmers in New Zealand are good at producing sheep but not so hot when it comes to producing cars. And sometimes I want a car more than I want lamb. So I trade.
We each take what we produce and exchange it with others because the possibility of exchange allows us to seek out opportunities to improve our standard of living.
Stopping such trade can only make us poorer not richer. Trade barriers do not protect us. They impoverish us. They diminish our choices and they make us poorer.
The United States got rich, in part, because Americans were free to trade over a vast area with anyone who was willing to trade with them. Political boundaries didn’t matter.
The poor people of the world would be richer as well if they too had the same freedom. That they don’t, in large measure, is the reason they are poor.
James Peron is the president of the Moorfield Storey Institute and author of several books including Exploding Population Myths and The Liberal Tide