30 June 2018

Interesting Point

Ian Welsh makes a very good point, that free trade does not create efficiency.

In fact, when we look at what happens with international outsourcing, it increases transportation costs, it requires more people, and emits more greenhouse gasses:

For the past few weeks I’ve been reading a raft of literature by lawyers, economists and bureaucrats involved with the World Trade Organization (WTO) and other free traders. It’s been a fascinating journey into an alternate world, one in which frictionless trade and money flows; and unified regulations and laws are considered to be a good thing.

The reasoning behind this virtually unquestioned acceptance is as follows: if there are no barriers to trade, whether financial or regulatory, goods and services will be created (or done) wherever they cost the least. If they are done in the lowest-cost place, they are being done in the most efficient way, and that means more is created and consumers also pay less.

It is thus a good thing, virtually always, to reduce barriers to trade and services. If it can be done for cheaper somewhere it should be. Some people may lose, but overall more (or the same) is created for less, and this is good.

This is basically an article of faith in everything I’ve been reading from people who make their living around the WTO.

But you may have caught the error in the thinking. It assumes the lowest cost is equivalent to the most efficient.

But it isn’t. When manufacturing moved from the US to China, it cost less to do in China, yes, but it produced more carbon (climate change); it took more people to produce the same amount of goods, and it generally used more materials, as well.

In other words, in every way except the monetary cost it was less efficient.
Free trade is about labor market arbitrage, not any real efficiencies.


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