Economists and the general public often disagree about free trade. In May, 2000, for example, the US Congress debated whether to grant China “Permanent Normal Trade Relations,” which would keep trade barriers low between the two countries. The public was split on the issue. In a Wall Street Journal poll, 48 percent agreed with the statement that “Foreign trade is bad for the US. economy, as cheap imports hurt wages and cost jobs.” Only 34 percent agreed that “Foreign trade is good for the US. economy, resulting in
economic growth and jobs for Americans.” By contrast, economists overwhelmingly supported the proposal. They viewed free trade as a way of allocating production efficiently and raising living standards in both countries. In the end, Congress agreed with the economists, and the bill passed the House of Representatives by a vote of 237 to 197. Economists view the United States as an ongoing experiment that confirms the virtues of free trade Throughout its history, the United States has allowed unrestricted trade among the states, and the country as a whole has benefited from the specialization that trade allows. Florida grows oranges Texas pumps oil California makes wine, and so on. Americans would not enjoy the high standard of living they do today if people could consume only those goods and services produced in their own states. The world could
similarly benefit from free trade among countries To better understand economists’ view of trade, let’s continue our parable. Suppose that the country’ of lsoland ignores the advice of its economics team and decides not to allow free trade in steel The country remains in the equilibrium without international trade Then, one day, some Isolandian inventor discovers a new way to make steel at very low cost The process is quite mysterious weaver, and the inventor insists on keeping it a secret. What is odd is that the inventor doesn’t need’ any workers or iron ore to make steel The only input he requires is wheat
. The inventor is hailed as a genius. Because steel is used in so many products, the convention lowers the cost of many goods and allows all lsolandians to enjoy a higher standard of living. Workers who had previously produced steel do suffer when their factories close, but eventually, they find work in other industries: Some become farmers and grow the wheat that the inventor turns into steel Others enter new industries that emerge as a result of higher lsolandian living standards. Everyone understands that the displacement of these workers is an inevitable part of progress After several years, a newspaper reporter decides to investigate this mysterious new steel process. She sneaks into the inventor’s factory and learns that the inventor is a fraud. The inventor has not been making steel at all. Instead, he has been smuggling wheat abroad in exchange for steel from other countries The only thing that the inventor had discovered was the gains from international trade When the truth is revealed, the government shuts down the inventor’s operation The price of steel rises, and workers return to jobs in steel factories. Living standards in Isoland fall back to their former levels. The inventor is jailed and held up to public ridicule. After all, he was no inventor He was just an economist .
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