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How Americans Benefit from Trade

IN 1978, AN ORGANIZATION CALLED the Kansas Agri-Women started placing billboards across the state proclaiming: “One Kansas farmer feeds 55 people + YOU.” The Agri-Women regularly had to update their billboards as farmers became more productive. Each year, one Kansas farmer could feed more people than he could the year before.

By 1999, the billboards advertised that one Kansas farmer feeds 128 people—plus you. Eventually, rather than continually updating the billboards as farmers kept getting better at their jobs, the group changed the text to read: “One Kansas farmer feeds more than 128 people.”

Fewer people feeding more and more people—most people probably agree that’s a good thing.

Something similar is going in in manufacturing. U.S. manufacturing output has never been higher than it is today. Manufacturing workers are more productive than ever, thanks in part due to U.S. trade agreements. Some people complain that there are fewer manufacturing jobs, but whether in agriculture or manufacturing, the ability of fewer people to produce more output is a good thing.

We know how to increase farm jobs—just outlaw tractors. And we know how to increase manufacturing jobs—just require everyone to work with one hand tied behind his back.

In fact, a recent Ball State University study found that if we somehow kept the productivity of manufacturing workers at 2000 levels, then in 2010 we would have had 20.1 million manufacturing jobs instead of just 12.1 million.

U.S. manufacturing output went up after the North American Free Trade Agreement (NAFTA) was approved, and it continued to increase after China joined the World Trade Organization (WTO). The same goes for agricultural output.

With respect to agriculture, here’s what a National Public Radio report said about trade: “Walk through the produce section of your supermarket and you’ll see things you’d never have seen years ago—like fresh raspberries or green beans in the dead of winter.”

Most Americans take these benefits for granted. Economists often talk about the benefits of lower prices, or a growing economy, but we also benefit from more choices than ever before.

Someone said NAFTA could have been called the North American Cancer Reduction Agreement, since it increased the year-round supply of fruits and vegetables for U.S. households.

Someone said NAFTA could have been called the North American Cancer Reduction Agreement, since it increased the year-round supply of fruits and vegetables for U.S. households.

The lesson here is that the standard account of trade issues that you find in the news is wrongheaded. That view identifies the national interest with increasing exports in order to create jobs, and holds that trade agreements that help other countries export more than our own country are bad trade deals. But a better measure is whether those agreements increase Americans’ freedom, regardless of what happens to exports and imports as a result.

Worrying about the balance of trade between nations is as arbitrary as worrying about the balance of trade between households and firms. You personally have a trade surplus with your employer. You export your labor outside your household by sending it to your employer. Your employer reciprocates not by exporting any goods and services back to you, but by drawing down its assets and sending you currency. At the same time, you have a trade deficit with many others. You run a trade deficit with the grocery store, and the hardware store, and the shoe store, and your dentist, and the kid next door who mows your lawn.

Nobody thinks the economy would be better if we tried to eliminate all these inter-firm/household trade deficits. That would be a barter economy! Trade that crosses national borders benefits people for the same reason as trade that crosses the street: It allows everyone to enjoy more and better stuff than they could produce themselves.

And low-income people benefit the most from lower prices, because necessities like food and clothing eat up a larger proportion of their paychecks.

But the benefits of imports aren’t limited to consumers. About half of all imports are inputs used by Americans to produce something else.

Fewer and fewer U.S. farmers are producing more and more food each year. Where is all this food going to go?

It’s going to help feed the world. There’s a limit to just how much food Americans can consume. U.S. farmers and ranchers increasingly rely on foreign markets. Agriculture exports are about $150 billion per year, up from just $70 billion in 1970.

Consider this: Farm subsidies cost taxpayers about $20 billion a year. If you are a U.S. agriculture producer, the ability to export to people in other countries is much more important to your success than the U.S. farm program.

Farm subsidies cost taxpayers about $20 billion a year. If you are a U.S. agriculture producer, the ability to export to people in other countries is much more important to your success than the U.S. farm program.

Many exports are subject to foreign trade barriers, and the most effective way to reduce those has been through free trade agreements. But U.S. trade barriers are a big problem too. Our high import taxes on foreign-made shoes and clothing, for example, leave foreigners with fewer dollars to spend on U.S. agricultural exports.

U.S. trade barriers weaken our negotiating position. When American trade negotiators ask a country like Japan to open its market to American rice exports, they can point to our sugar program, which doubles sugar prices for Americans. It’s hypocritical to demand other countries reduce their barriers while refusing to reduce ours.

By the way, you may remember hearing that production of Oreos cookies recently moved from Chicago to Mexico. What’s the number one ingredient in Oreos? Sugar. When the U.S. government adopts policies that double the price of sugar, it encourages candymakers and bakers to relocate in other countries. It’s a good example of why we need more free trade.

Another benefit of trade is the possibility of more peaceful international relations. According to one study, that’s because “there’s more to lose when trade is there.” President Ronald Reagan summed up these benefits in a 1983 radio address to the nation on international trade:

The winds and waters of commerce carry opportunities that help nations grow and bring citizens of the world closer together. Put simply, increased trade spells more jobs, higher earnings, better products, less inflation, and cooperation over confrontation. The freer the flow of world trade, the stronger the tides for economic progress and peace among nations.

Fundamentally, free trade is about rejecting favoritism and expanding economic opportunity for all. Free and open trade has fueled vibrant competition, innovation, and economies of scale, allowing individuals and businesses to take advantage of lower prices and increased choice. As a result, billions of people around the world have escaped the constraints of subsistence farming and extreme poverty that characterized the lives of most of humanity throughout history. It’s in America’s interest to continue to lead efforts to expand economic freedom, including free trade, in the United States and around the world.


Mr. Riley is the Jay Van Andel Senior Policy Analyst at The Heritage Foundation.