NCPA - National Center for Policy Analysis

Free Trade is Not Just About Exports

September 22, 2003

The collapse of the latest talks on liberalizing world trade shows how backward conventional thinking is about free trade, says the chief economist of the Dallas Federal Reserve Bank. Last week, representatives of poorer countries walked out of the World Trade Organization talks in Cancun, Mexico, miffed at the rich countries' agricultural subsidies.

Like protectionists in the developed world, they believe that the gains from lowering trade barriers result from exporting more goods to other countries. Not so, says Cox:

  • The gains from international trade come from the goods we import -- not from increased exports.
  • Exports are the price we pay for the goods we import.
  • Since consumption is the goal of economic activity, we are better off we can obtain goods from abroad at cheaper prices than we would pay domestically.
  • Since 1980, U.S. trade has more than tripled to $2.4 trillion a year, while the economy has doubled in size and the Dow Jones industrial average rose ninefold -- even after the last three years' declines.
  • Over that period, America added 35 million jobs, and unemployment is still lower than in 1980.
  • Comparisons of economic freedom -- including international trade -- indicate that countries ranking in the top fifth in economic freedom consume almost twice as much per capita as those countries in the next 20 percent.
  • They are also eight to nine times better off than residents of the least free nations.

That is why trade liberalization is important to both poor and rich countries alike.

Source: W. Michael Cox (Federal Reserve Bank of Dallas), "Free Trade is Indispensable," Investor's Business Daily, September 22, 2003.


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