The benefits of free trade

The benefits of free trade

Okay the benefits of free trade can be staggering because different nations are better at producing different things. Let’s analyze this. One nation may be great at making computers, computer chips, and accessories (the US), while another may be better at producing something else, let’s say cigars, coffee, or wine (Cuba, Columbia, France).

The beautiful theory of free trade states that we should let each nation produce exactly what it is good at producing and then trade. Let Americans build computers, let the French make wine and then trade one for the other. And each nation will be better off for having done so. The French will be able to buy high quality computers for a reasonable price, and Americans may be able to enjoy good wine for a reasonable price.

BUT. If we restrict this trade, if we force a tariff, or quota, upon these goods, then the price for computers may be too high for the French, and the price of wine may be too high for Americans. Each side is worse off. Americans must seek out lower quality American wine which may actually be more expensive. And the French may have not substitute computer industry yet created. So they must go without computers and spend far too much on one. Again we can see how each Nation is worse off.

The aim of restricting international trade is to save the jobs of those that may be displaced by international competition. But this is often short lived. The United States loss of much of the steel market afforded the United States the man power, industry resources, and entrepreneurial opportunity to develop computers. Thus, United States find itself to be not so great at producing moderate steel for low prices, but it find that it certainly was well-equipped to create the computer industry and produce some of the fastest computers in the world.

BUT. What if Japan had never stolen the steel market from America. The United States may have still be largely producing steel, feeling that it was the best suited to produce steel. Thus, the computer industry may not have elevated as fast as it did.

Now consider this. Had steel mills still existing delayed the creation of the computer industry, the tech boom of the late nineties may not have happened in the nineties at all, but may have happened later in time, maybe closer to 2009, instead of 1999. Allowing Japan to excel at steel and not tariff-ing Japanese steel allowed the United States to reap great rewards