Episode Transcript
[00:00:01] Speaker A: Hello everyone. Welcome to the 246th episode of the Atlas Society Ask. My name is Lawrence Olivo, Senior project Manager here at the Atlas Society. Our CEO Jennifer Grossman has the week off, but I'm excited to have joined me today Atlas Society founder and senior scholar David Kelly along with senior fellow Robert Tracynski to discuss free trade, how trade is a vital necessity for prosperity and essential for economic freedom, and why barriers to international trade are mostly arbitrary and destructive. David, Rob, thank you so much for joining me today.
[00:00:36] Speaker B: My pleasure.
[00:00:37] Speaker C: Always a pleasure.
[00:00:38] Speaker A: All right, and I think we're starting things off with Rob, so I'll pass it over to you.
[00:00:42] Speaker C: All right, so I've been working on for Atlas Society, but working on a pocket guide to free trade and it's of course extremely timely right now because the anti trade viewpoint is very much in the ascendancy in American politics and is being put into practice right now. So I wanted to go start just by giving a very basic overview of the case, essentially the case for trade.
Basic theory is why trade is good and trade is good because it allows for specialization and the division of labor. So I want to sort of start by going back to almost a kind of a very early, primitive sort of approach to this, which is trade is the basis of all economics. You know, if, if you were, say you washed up on a, on a deserted island and you were there entirely by yourself, there would be no economy because you'd be making everything by yourself and for yourself there'd be no trade. You might not survive, but, you know, you would, there would be no economy.
Trade is what happens the minute we rise up from that and actually start working together and cooperating to do things. So on a very primitive level, you might think, you know, let's say you've got one guy in your primitive tribe who's really good at making the stone era stone spearheads, right? He chips the stone really nicely, gets a nice sharp edge, a great shape, a good balance and he's really good at making spearheads and spears. So you'd have your first level of specialization that this guy makes all the spears. He spends all day doing that. He gets really good at it so that everybody, so the hunters can go out and they can have the best spears to go hunting. This is your big, you know, and if you take this onto a slightly higher level, you have like, you have the village blacks, you know, say you have agriculture, you'd have the village blacksmith, he's making metal tools, he specializes in metal working, spends all day learning that Becoming very good at it. He makes the metal tools that he gives to the farmers so that they can be more productive and do a better job of planting and harvesting the crops. But you notice that at all these levels, this depends on trade. You know, if you're going to specialize in making stone arrowheads or if you're going to specialize in being the guy who, the metal worker, you have to be confident that I'm going to be able to trade this metal for the thing, other things I need, like food or shelter or clothing, etc. So it all depends on trade. And by the way, we know, talk about these primitive examples, we know that at this level point in time, there were vast networks of trade. So a great study I came across a few years ago, some scholars in Germany, they went through and they looked at archaeological evidence about standardized weights for measurement.
So this is, you know, at the time, if you were trading good goods, you would have these weights that you put on a scale and they'd be standard weights to, for, you know, if you're trading grain, if you're trading gold or other metals, whatever, these are the standard weights you'd use to measure them. And we have archaeological evidence and we found, we've dug these up and found these weights that people used. And so they compared them across, all across the world. They found that the standardized weights, the same weights were used in a standardized way across these vast areas. So, for example, you could go from Mesopotamia, modern day Iraq, all the way to Germany using the same weights. And that indicates to them that there were these vast NETWORKS. This is 3,000 to 5,000 years ago. This is the Bronze Age. There were these networks of trade that went for thousands and thousands of miles. And so it indicates how much people were trading in order to get the things they needed to survive. Basically all of human civilization, the first human civilizations, were built on trade.
And in fact, the whole name the Bronze Age, we talk about that. You know, bronze is a combination of copper and tin. It was the, the best metal anybody had ever made up to that point, up to about a thousand, two or three thousand years ago. So the Bronze Age was based on bronze, but it's copper and tin. Copper and tin aren't always found at the same spots. They have to be. You have to have somebody mining copper and somebody mining tin and then bringing them together to make, to make the bronze. And then the copper and tin aren't found in the same places where the best farmland is. So you had these big networks of trade throughout the Bronze Age. Being Built up to, you know, to, to bring the copper and tin together and then bring that, the bronze to, to the farmers at the best farmland. So all of civilization was built on trade from the very beginning.
And I want to work up to the ideas of. Go over the ideas of three economists who came along much later, starting in, in the 1700s, and really identified the basic principles of how this trade works, how trade builds civilization, how it makes us wealthier and more prosperous. And the three. First economist is Adam Smith. Adam Smith is the one who identified this idea of the division of labor being the essential for trade, the essential benefit of trade. And he had the famous example. It begins his book the wealth of Nations. He begins it with the description of a pin factory. So he's making a little metal pin. And he drew on the work of other people who had analyzed this and found that the job of making a pin could be divided to 18 separate tasks. And if you had 18 separate people doing those tasks, each person is like in an assembly line, the early version of the assembly line. Each person could be. Could focus just on that one task, get really good at it, get really fast at it. And he found that if you had people specializing, instead of one person just making every pin from scratch himself, if you had people specializing, you could make a lot more pins, like 10, 100 times more pins in a day than you could if you were doing it by yourself without any specialization. And that was the basic idea, that the more specialization you have, the more productive you can be, the more stuff you can make with the same amount of time and labor.
Now, the key point he makes is that the amount of specialization depends on how big the market is. Because if you're going to focus just on making pins or even just on doing one job, one out of 18 jobs and making a pin, you better be really certain that there's a big network of trade, a lot of people to trade, the. You know, who are going to be able to buy the pins, and that you're going to then be able to trade for all the things you need to get. So the more specialized you get, the more you depend on having a large market to sell to. So he says the size of the market, the extent of the market determines how much specialization you could have. And basically, the bigger market, the more trade, the wider the trade is dispersed, the better. That's Adam Smith now, a little after Adam Smith, since about 1776, he writes the multinations. So in the early 1800s, a guy, another British economist, David Ricardo, comes along and he extends that to talk about the idea of comparative advantage. And so this is the idea that, well, if that every country or region or if you're trading amongst each other, your country or your region is better off making the things at which you are most productive. And his big example is he looks at cloth versus wine. This is trade between Britain. He just takes Britain and Portugal. He says, well, the Portuguese in Portugal, they can actually make cloth just a little bit more productively than, than we can here in Britain. They're a little, they're a little more efficient at it. It takes less labor to make the same amount of cloth. But they're way better at making wine, you know, than people in Britain. Now was the last time you heard about a British wine, right? Britain is not an ideal wine growing region. So he says, you know, Portugal makes wonderful wines. They make excellent wines. So, you know, they're basically, they have. They're twice as efficient, they're slightly more efficient at making clothes, but they're twice as efficient at making wine, twice as productive at making wine. So obviously in Portugal, the emphasis is going to be they're going to. It's going to make a lot more sense for them to put a lot more of their effort into the thing they're good at, growing wine, making wine, and that we in Britain should be making cloth and not making one. Now, there are British wines now, but, you know, it's, it's a. It's a long road for them to climb to, reputationally speaking.
So this is the idea that even if, you know, even if somebody else, even if you make something a little bit better than somebody else, if there's some other thing that you're even better at, that you're even more productive at, you should put your effort as a country into producing the things that are highest, most productive for you. And before we get to our third principle of economics that I'm bringing here, I want to bring out the implications of this one, because this one is a very big one for the issue of trade today. So one of the things you probably hear is that America's industrial industry in America has been hollowed out, that we don't make anything in America anymore. Where that, that all this trade with China and other countries has, you know, that America's industrial economy has been laid waste, has been destroyed. That's actually not true. This is the big myth of trade. You'll hear it all the time. It's the big myth of trade, of the trade wars. And so I looked this up and Lawrence, I Sent you a link to an article I wrote about this a little while back where if you actually look at the statistics, America makes more stuff in terms of the value of industrial production in America. It has never gone down. We make more stuff now than we about. Well, we're near the peak from about 10 years ago, but we basically make more stuff now than we ever have before. We make more stuff. American industrial production in terms of its. The value of the production is higher than it was 50 years ago. It's higher than it was 100 years ago. Now we employ fewer people doing it. The peak was about 1970, about end of industrial employment in America. But we make more. The value has increased. So what happens is that what's actually happened with manufacturing is we make more stuff with fewer people. In other words, we are way more productive at manufacturing than we used to be. And that's this principle of comparative advantage. Your effort and time and the effort of your economy should go into the things that you are most productive at. So what's actually happened with manufacturing for the most part, is that we is at the low end manufacturing the less productive versions of manufacturing. That's what's gone overseas. The very highest, most productive forms of manufacturing are what we specialize in now in America.
So we have fewer people employed, but we're way more productive. And our industry is still growing, but we get paid more for it. And this idea that America has been hollowed out by manufacturing is belied by the fact that we are the wealthiest large country in the world. There are a few smaller countries where it's like 300,000 people in Liechtenstein and they're wealthier. But for a country of any size, a country of 300 million people, we are the wealthiest in the world. We're the wealthiest that has ever existed in all of human history. And again, we're better off. We're wealthier than we were 50 years ago. In 1970, when manufacturing was. Employment was at its peak. We're wealthier than. Way wealthier than we were 100 years ago. So this idea that it's been hollowed out, this is all a myth. And it's because people are ignoring this issue of comparative advantage. We should be manufacturing the things that we are most productive at. And that's exactly what we're doing. And that's why we're wealthier. We make the software more productive. You get paid more. Every worker is worth more money. And that's why we've become so wealthy. All right, so the last point I want to make the Last thing I want to draw from the Economist. This comes from Friedrich Bastiat, a French economist in about 1848, 1850, and his big. The book he wrote that I really recommend, everybody should read. He's a wonderful writer. It's called what Is Seen and what Is Not Seen. And he said the basic mistake people make in economics is they focus on the. The thing you can see that's in front of you and you don't realize it's connected to something else somewhere else that you can't see. And the big. The most common version of that mistake people make is they see the benefit of something. So there's some policy, and they see the benefit over here, but what they don't see is the cost that's being paid somewhere else.
And he applied that specifically to trade. That oftentimes trade restrictions and tariffs will benefit one person or one industry. And you'll see that benefit, oh, well, the tariff really protects us and it makes our industry stronger. But what you don't see is the cost of it, which is that everybody's paying more money. Everybody else is paying the cost of higher prices in order to benefit this one industry. So one person's better off or one industry is better off, everybody else is worse off. So in balance, your country is actually being dragged down by tariffs. I want to give a historical example of that, and then I'm going to end with a contemporary example of that. The historical example of this is one of the great, first great victories of free trade, which was in 1846, the repeal of the Corn Laws in Britain. Now, corn laws, corn just means grain in. In the name of the. Of the law. But these were tariffs on grain that were passed in 18, I think 1815.
And this was a. These were laws that stayed on the books for a long time because somebody benefited from it. The Corn Laws were loved by the big landowners and the aristocracy, and they loved it because by driving up the price of grain, you drove up the price of land and you made land more valuable and land more profitable. And so the big landowners and the aristocrats, they loved it. Who hated it was the average person, the common man, the poor people, especially in London, because by driving up the price of grain, you drove up the price of bread, you made it a lot harder to feed yourself or to feed a family. And so there were people literally starving in London, so the aristocrats could be better off. And so this became an extremely unpopular law and was repealed in 1846. But it's a perfect example of this Way in which what is seen and what is not seen, one person benefits from the trade restrictions, somebody else suffers from it. Now, that's where I want to end by bringing it to the contemporary example that I just came across my.
I just came across this this morning, an announcement by a. That they're laying off steel workers in Minnesota, in the Iron Range in Minnesota, northern Minnesota.
Now you think, well, with all these tariffs, a bunch of these tariffs are supposed to protect steel making in America. Why are they laying off steelworkers? Well, what happened is that, yes, the tariffs, or they're expecting higher tariffs to benefit the steel worker to protect us from foreign steel. But on the other hand, what's happened is all this talk about tariffs with Canada, especially with Canada, has driven down the demand for automobiles. It's hurt the automakers, who are the main market for steel from the steel workers in Minnesota. So the steel workers are getting laid off because, again, this is a tariff that was meant to benefit one group of people, the people who make steel, but ended up hitting really hard that people who use steel, the companies that use steel to make automobiles. And so you have all these workers being laid off. And this is an example of, you know, thinking that you're going to benefit because the. There's one person is going to benefit, but somebody else is paying the cost. And then it comes around even to the seal workers. So this is an example of these economic principles in action that you impose these tariffs in the hope that you're going to, oh, it's going to be good for us.
But what you're actually doing is you're collapsing the size of the market, you're collapsing the size of the economy. You're getting rid of all the benefits of trade.
All right, so that was a lot to cover. But I think we can then go on to talk about the various objections and applications of this. And I want to get to. I think is a more philosophical issue that David and I are going to work towards at the end.
[00:16:20] Speaker A: Okay, perfect. Thank you very much for that, Rob. David, do you want to chime in with anything?
[00:16:27] Speaker B: No, I'll save it for a little later.
We have philosophical issues here, and Rob did a good job of laying them out.
And, you know, but there's a lot that's a big topic, so we can. I. I did want to say that, you know, trade.
Trade goes back even before major civilizations, even before Mesopotamia. People were in the one example I always love was people in the Mediterranean like Amber, especially women for their jewelry.
But no, there was no amber in, in the Mediterranean era. And, but it was available. How did it, how was it available? No one knew. But it was found in the Baltic Sea near England and now Germany and Russia. And it was, you know, created down the rivers, the Rhine, the Rhone and so forth down to the minute.
So that was not part of a known economy where all the participants were involved, but it was, it was trade extending far, far beyond what people were, you know, the ordinary person at the time would ever have encountered outside his tribe or city.
It's amazing. And one of the, I mean, the broader lesson here is that trade is so fundamental a situation.
And since Adam Smith, at least we've, we've learned that at least voluntary trade is win, win.
I mean, it's subject to errors. People make miscalculations about how they're going to win, but, you know, they're trying and you know, the freedom to do a deal or walk away is, is their choice. It always involves risk, but it's not, it's nothing like the risk of being coerced and being either a forced trade or forced cooperation or a ban on certain things, which we'll get to when we talk about more about tariffs.
So back to you, Rob, or one.
[00:19:00] Speaker C: Thing I want to add to that. You're talking about the traded. Amber. So there's a classic thing people should look up because you can find this for, find it online. You can get this pretty cheaply. It's an old essay, classic essay from I think in 1946 or something like that by Leonard. 1946 or 1949, a guy named Leonard Reed, who used to be, was the founder of the foundation for Economic Education. And he wrote a little short pamphlet called I Pencil. And it's basically describing from the pencil's perspective the entire process of how a pencil, you know, a simple. I've got a pen here, unfortunately. But how a simple pencil, a lead pencil, is manufactured and talking about all, you know and describing this vast global network of trade that's required for it. The part that I remember is, you know, that the, the, the, the, you know, the eraser on a pencil, the little sort of orange colored eraser on a pencil involves some, you know, product that has to be brought in from Indonesia, right? And then there's something else that's from tin mines and Cornwall. And it's just this, this whole global globalization all contained in one pencil. So you, and his point was you cannot make even the simplest pencil, this very simple everyday thing, you cannot make it without this vast network of trade. And even today in our more sophisticated economy, precisely because it's so sophisticated and the links are so complicated. It's the same as with the amber, where the average woman wearing an amber necklace on the Mediterranean would not have had any clue where the Baltics were or where this amber was coming from. Same thing that the average person using a pencil to write with has no clue where all these things come from. And you don't have to know because there's this network of trade. So it just shows how. And the point I want to make about this Leonard Reid essay, though, is that this was written, like I said, about 1949. It was written at the sort of the height of the golden age of American manufacturing. So there's again, there's this mythologizing and this false nostalgia about, oh, if we could clamp down a trade and go back to the. The America as the big industrial powerhouse in the 50s and 60s, in the middle of the 20th century. But at that time, you know, that America's manufacturing power was because we were in the center of a vast global network of trade. It was trade that built American prosperity and, you know, from the very beginning of America's existence.
So, you know, but it's these. It's these global trade works that. Networks that are way more complex that I think people appreciate.
[00:21:27] Speaker A: Okay.
I see comments in the chat and questions, and I just want to let everyone know that we'll be getting to them throughout the article. I know some of these I think you're going to probably address here real soon, Rob, once you get into sort of the questions I see mainly questions about manufacturing being sent overseas or fragility of global networks. What does that mean for specialization? So I think some of this you will probably be getting to soon when you sort of talk about some of the main critiques of free trade, if you want to get into that.
[00:21:59] Speaker C: Yeah, so I want to talk just a little bit about that. I think it's a good idea to talk about some of the critiques of free trade. So first of all, somebody said he worked at a steel mill. And how do you compete with a country that pays their workers far less than we make? Well, that's the whole point I'm getting at is that you don't compete with a company that pays their worker, your country that pays their workers, far less you the way you compete with it or is by not competing by going into doing something that they can't do. So, you know, America has. So this is complaint. America no longer makes things. We're no longer a manufacturing Economy. Here's an example. JD Vance is complaining about how well you know all this trade. What's the value of it? It's just because we get cheap toasters. Well, why would you want us making toasters? Again, toasters are not a high value manufacturing product. Right. They're a cheap manufacturing product. And this is where I talk about the false nostalgia. So I didn't give you this link. I didn't think to give you this link, Lawrence, but I wrote another piece a couple of years ago about this sort of false nostalgia for the 1950s. Because if you go back and you do a calculation as to how much money people made in the 1950s, how wealthy they were, they were much less wealthy than we are today. Right? So, so this sort of, this, this paradise of the American manufacturing economy now actually that wasn't the peak of this paradise of the American manufacturing economy that we sort of imagined back then. Yes, we were making toasters, but we were also getting paid a lot less because toasters are not the high value thing to make. So what's happening in American manufacturing is we've gone away from the less productive things, the things that are more easily done with cheap labor in Turkey and we've gone into higher end things to do like electronics and you know, higher value machine tools and things that are much more complex things to manufacture, things that are also much more automated. And so therefore, you know, the labor is much more productive and we make more money from it. But we've also gone out of manufacturing into things like services and into, into design and into, into computer programming. All these things that are much higher value productive, much more productive activities. So there's a certain, and I guess this is going to get us to one of our philosophical things. So I think it's time to bring us out now, bring this out now. Which is one of the ideas behind the attacks on free trade is a, an assumption of stasis assumptions that everything should stay the same as it used to be. And people get upset because, oh, how come we're not manufacturing toasters anymore? As if manufacturing toasters was the fully, the full final, you know, highest, highest end point of economics. Right. And, and I talked about how, you know, manufacturing employment as, as a percentage of the population. I think it's as a, I'm trying to remember the exact, the figures are my article, but as, either as an absolute number or whereas a percentage of employment, manufacturing peaked somewhere between 1940 and 1970.
And one thing I've come across in a bunch of different contexts is 1970 is what I call the year of stasis. Because there's a lot of arguments we have today where people make this assumption that wherever things were like in 1970, that's the way things should still be right now. Well, I'm old enough to remember the 1970s. They were terrible compared to today. We were a lot less better off. We had a lot fewer options, a lot fewer things available to us. There's no way we should want to stay in 1970. But there's this weird thing that people imagine the way things were when I was a kid must be perfect. You know, they had this false nostalgia about the past, and they are mad if anything departs from that. So if, you know, if my old man worked in a steel mill or I used to work in a steel mill, you know, 40 years ago, and that was a great job, therefore we should all be still working in steel mills, that it, you know, the economy is always changing. And in fact, you know, somebody working in a steel mill in the middle of the 20th century, probably their grandparents were working on the farm, right? So what happens is one of the figures I like to cite is if you go back to the year 1800, something like 3/4 of all Americans were working in agriculture. Now, if you go to Today, less than 2% of the of Americans work in agriculture. Now. From the perspective of, oh, everything should be static, everything should, you think the agricultural economy must have completely collapsed and America must be poor and starving now. In fact, we make more food than we've ever made before. We make it much more productively because we do it with a fraction of the number of people, of the percentage of the population. But that's the point is that the economy is always changing, it's always growing, it's always evolving. And a lot of complaints against trade, I think philosophically they're based on this idea of this, you know, things are static, things will always be the way they were. And if things have changed, they must have gone downhill. And the actual evidence shows no, things have changed and they've gone uphill. We're wealthier than we used to be.
[00:27:07] Speaker B: So I would like to add something to that, Rob. And this again goes back to Carl Davis's question about steel. The, you know, you look at the, at the, you know, the macroeconomic or microeconomic, you know, aspects of it, and, you know, that those are abstractions, they're valuable and important. But there's also the personal level that, you know, we don't have a static society where people, you know, are kind of guaranteed the same job for life.
Either by tradition or by law. They are, the economy is free enough still, despite a lot of regulations to that. Businesses come and go, they flourish to go out of business, jobs do likewise. And so, you know, all of us as individuals face a certain element of risk.
Now one of the things that is really striking over the last, you know, two centuries is that the risks that human beings faced were mostly from nature.
Typhoons, hurricanes, lightning, famine, if they, if they had a poor crop yield because of something about the soil.
Now the biggest risks, and for quite a while this has been true, the biggest risk are economic, not natural. We, we've, you know, fixed a lot of, or found ways of addressing and avoiding or ameliorating the natural risks.
But we have, and you just look at the hurricane, you know, casualties over the last, I don't know, 50 years or so. But the, you know, the economic risks are losing your job, having your salary go down, having an accident so you can't work. I mean, that's, people have been, you know, we're trying to protect against that for a long time on a private basis. Before there was so Social Security and so. But you know, there's a, there is a kind of price to pay.
The advantage is that almost everyone is better off in a free system.
And the nimbleness that it requires sometimes from, from each of us as individuals is, you know, has a, you know, follow on effect that we are more innovative, more, you know, come up with more ideas I think than almost any, any other country.
And.
But there's no eliminating risk. It's not, you know, life is risky, we can reduce the risk, but it'll never get to zero and can't.
[00:30:18] Speaker C: And I also want to make the point that, you know, the thing that somebody mentioned, because somebody mentioned what about you know, the, the disruptions to trade, like what happened with COVID And yeah, Covid was a great, it was interesting. It was that, you know, you have all these sort of hidden global supply chains and then suddenly they were all put out into public view in a way during, especially the, the latter part of COVID where, you know, the demand started to come back but the trade hadn't rebounded yet and you had, you know, these. There's a great thing that a photo I saw of the sea off the port of Los Angeles and it looks like the Normandy landing on D day because it's just full of ships as far as the eye could see because they were backed up because they couldn't get them through fast enough.
To be processed at the port because the demand had come back as Covid was starting to go away and that all this shipping was coming in, but the supply chain of the processing of it was still catching up.
So yes, by having a more complex economy, you actually have the risk that when it's disrupted, it gets very disrupted. Right. And you can have all sorts of problems. And you know, you can't find toilet paper one day and, and then later on you can't find something else.
The again, that's. That. That's the risk of having a more complex economy. But the benefit of having a more complex economy is you actually become a lot wealthier. And I think in becoming a lot wealthier, you actually do build up a greater reserves, you know, that a wealthier economy, a wealthier society is better able to absorb the disruptions. Like, you know, I mean, one of the major things is that we're far, you know, in pre industrial economies, the main worry was that if there was a disruption, like from the weather, you were going to starve. Right. We don't worry about starving anymore. You know, we worry about, oh, you know, it took three weeks to get something shipped because of the supply chain disruptions or it took longer. The amount of hardships we went through during COVID were, were way smaller than. Than what, than what human beings have experienced on the historical scale. And it's because we are so much more wealthier. And by being wealthier, we are more resilient.
But one of the things I wanted to have that bring up though, is I think there is one legitimate objection or exception which is, you know, there are cases where, especially when it comes to national security, where, you know, there are people make the argument, well, you know, put it this way, the entire US Aerospace industry, right. It largely depends on the fact that military spending, you know, there's this huge benefit of military spending to the U.S. you know, they're building jets and, and fighter jets and, and rockets for the United States government. And that gives us huge advantage to the u. S. Aerospace industry. And it's because we don't want to be building our fighter jets and building the complex, you know, military machines that we need. We don't want to be building them overseas. We don't want them to be built in China because we might have to go to war with China. So there are, there's some legitimate exceptions where you say, okay, we want to be able to manufacture this thing in our own country in order to be able to, you know, not have that disrupted by a host, by an enemy by someone who's hostile to us.
Now, I want to say that sort of acknowledge that with the proviso though, that oftentimes these claims are fake. So, for example, during his first administration, Donald Trump used, and by the way, Biden kept them on. He never got rid of them because he's an old anti free trade guy from the left.
But he used national security as a reason to put tariffs on steel and aluminum. But a lot of the steel and aluminum he put the tariffs on was not stuff that's vital for national security. It's not stuff that's irreplaceable. National security often gets just used as an excuse for, you know, I really want to have these terrorists for some other reason. I wanted you have it to buy off a constituency to, to, you know, the steel makers in Pennsylvania. You know, more people will vote for me in Pennsylvania if I, because I put tariffs on, on foreign steel. So oftentimes I think it's used for, for nefarious or for, for fake reasons when you know it's really a political reason you have for it and it's not an economic reason, it's not a national security reason.
And maybe that should bring me to the. What I'm reading a piece right now on how Canada, this trade war we're having with Canada right now is basically the world's stupidest trade war.
It is a perfect example of everything that's wrong with trade wars is the fact that we're getting into one with Canada. And I was really struck by one thing about the artificiality of this. So I said, you know, trade is the whole basis for civilization. It's the basis for wealth, specialization, the division of labor. Trade is the lifeblood of any economy.
And the basic idea between the anti trade, the basic premise of all the anti trade things is that somehow something magical happens when you cross international border. That trade goes from being good and a source of wealth to suddenly being bad for you because you've gone across some artificial line on the map. And the one thing Donald Trump's right about with Canada is the border with Canada is an artificial line on the map. It's the 49th parallel, more or less. There's some deviations from it.
And you know, it was just to settle a political dispute between us and Britain, we drew a line on the map and said, this is America, this is Canada. There's no reason why it has to be there. There's nothing special about that line. But notice that it's Trump who tends to say that. Well, okay, you know, he says it would be great if we had illustrated Canada, so long as there are 51st state. So as long as we move that artificial line forward and get rid of that artificial line, then the trade would be good. But the trade, as long as the artificial line exists, the trade is somehow bad. Why would the same trade be bad if it's going across an artificial border between the US and Canada and be good if it's inside the US there's no logic or consistency to it. It doesn't make any sense. The fact is the trade with Canada is good and it's good if it goes across the border. And if it's good if it doesn't go across the border, the border is irrelevant. But that gives some of the, you know, like I said, there's, there's some legitimate exceptions on very narrow issues having to do with national security.
But in everything else, this is all very artificial and arbitrary. That trade suddenly is good or bad for, for no good reason.
Well, Rob, last thing I'm going to mention on, on, on this national security issue is the other thing I have to say on that is that oftentimes it would make a lot more sense instead of saying we should manufacture everything in the US the better idea is what's called friend shoring. And this is the idea that instead of you can offshore manufacturing, you can send it overseas to a place where it's cheaper, but don't send it to China because they're an enemy. Send it to some place where there are friends. And Canada is a perfect example of that. Have things manufactured in Canada or in Mexico, a place where, you know, they're not always 100% friendly to us, but they're not a geopolitical threat either, where we have a long relationship but we know they're not going to attack us. And oftentimes, you know, for example, shipbuilding is a major one right now where we have these restrictions on shipbuilding. They're supposed to make it so for, for military national security purposes, but it's actually really super expensive to make ships in the United States. It might make a whole lot more sense to have like part of the ship, at least the hull of the ship made somewhere where it's a lot cheaper and where somebody's our friend and ally and we could build more ships and have a stronger military. So rather than being against trade, I think we should, for national security purposes, I think we should be more concerned with, okay, let's do friend shoring. Let's have the trade with countries where it might be Cheaper to make something, we can make more of it. We can get more of the things that we need for our military, more weapons, more ships, etc. But we're getting it from a friend, somebody we're not concerned is going to turn against us and we can get more of it and make our military stronger because we're taking advantage of the benefits of trade.
That's my tirade on that.
[00:38:25] Speaker B: I got it. Rob, let me interject the question here. You mentioned the political advantages of tariff and other resurgence on trade a bit earlier that in the distinction between state borders and international borders.
Do you think it's plausible that, you know, the reason that, you know, if Canada were the 51st state they would vote for the US electorals in the electoral system for the President and Senate and House, but now they don't. So they don't count? I mean, is that a, do you think that's a major philosophy, major political angle that politicians tend to bring to this?
[00:39:20] Speaker C: Sorry, what was the exact point? Because I missed a word there.
[00:39:23] Speaker B: I think I'm wondering if there seems like there's a potential political reason to distinguish another state or trade goods crossing a straight line, state line with international border. Like you know, you pointed out, it was in the case of the US and Canada. It was not based on any geographical, it was just a agreement.
But Canadians do not vote for the U.S. president.
[00:40:00] Speaker C: Yeah. And okay, yeah, so, but yeah, the borders are real, they have real implications. But I think the US Canada border is a great example because in effect, Canada is already economically the 51st state. Right. Because we have open trade with them. Their system is so similar to ours.
You know, their, their society is so similar to us that our societies are so connect, interconnected. And it actually, it happened in 1965 that there was a law that was passed that basically eliminated a bunch of trade barriers between the U.S. and Canada and led to this. You know, there are parts that go into an automobile that's made in Detroit. You know, the final assembly happens in Detroit. But there are parts that will cross the border eight times, you know, in the process because you know, Detroit and, and, and Toronto are basically like, you know, right here they're really close to each other. It's this whole one manufacturing area. And then there are some other parts to get shipped down to Mexico and then get shipped back up to Canada and then come to the US and there's so much benefit from that trade precisely because we have very similar societies, very similar economies, very similar people. And so all these benefits of trade that happen. And so this connects, I think, something somebody was saying in the chat that I just saw, which is, well, what about other countries having tariffs on us? Should we use tariffs, the threat of tariffs, to get them to reduce their barriers on us? Well, that's actually what we've been doing for the past 80 to 100 years. Basically, since World War II, there's been this whole effort to have all these free trade agreements that sort of like, you lower your trade barriers and we'll lower ours. Then when you lower ours and tried to get it down to where we're lowering them. And the most successful place that's been done is between the US And Canada. And the most successful within the US Canada trade. The most successful place has been done is, is probably auto manufacturing. And it's been this huge benefit for everyone. We have this, you know, much more efficient, much more economical auto manufacturing business. And so we've actually lowered the differences, economic barriers and lowered the political barriers because, you know, whether you have a prime minister or a president as your leader doesn't make very much difference as long as you have a similar system of government and a similar kind of society and you can work really well together. And those artif. Those diff, you know, the differences in informs and in who we vote for is actually kind of artificial compared to all the connections that we have. And that's why I think it's a real shame that we're like, blowing up those connections. We're making the Canadians really mad at us, really angry with us for the first time, you know, since 1812, basically.
You know, there's a famous battle that we lost in where we're trying to take the city of Quebec in 1812.
But, you know, for the first time since 1812, we're making Canadians really mad at us for no good reason over nothing. And that's the other thing, is that the, the. We talked about the political aspect of the trade war. One of the things about this, that think that this current trade war really shows is that it's the erratic way that this, these, these tariffs are. They're on again and they're off again, and they're changing from one day to the next. And the big thing that people are saying about Donald Trump's approach to this war is nobody knows what he wants out of this trade war. Right? There's no set of demands that we've given to Canada to bargain with them and negotiate and say, well, if you do this, we'll take off the tariffs. There wasn't one thing, oh you have to do more to stop fentanyl. Well, they did more to stop Fentanyl and then the terrorists were back on again, and then they're off again. And part of the big problem we're having right now is that it is so erratic. Nobody knows from one day to the next whether we're going to have the tariffs or how big they're going to be or what goods they're going to affect. And that more than anything else is what is quite likely pushing us into a recession right now. Because the one thing businesses hate more than anything else, they don't like tariffs. But the thing they hate even more than tariffs is uncertainty.
[00:43:56] Speaker A: But.
[00:43:57] Speaker C: But what's happened is because. And that's why I'm saying that by throwing trade into this realm of politics, making it a political tool to be used by a somewhat erratic president to achieve some somewhat erratic or quixotic goal, I think he really does want things. He does imagine that if he just throws threatens a lot of terrorists, they're going to say, okay, we give up. We're joining the United States. We're going to be the 51st state. We're going to name a city after Trump, whatever, that he has this grandiose idea that this is going to happen. It's not going to happen. What's going to happen in the meantime? There's lots of anger, lots of chaos and lots of destruction of our existing trade relationships. And that's why, you know, but one little side note on this I want to mention is, you know, part of the reason for this is that the last trade, trade. Tariffs and trade are supposed to be the job of Congress. They're supposed to have the power to put tariffs. Well, the last time Congress actually put passed a bill naming specific tariff levels was SPUT Hawley in 1930, which was this, you know, famous massive terrorists clamped on international trade and helped cause the Great Depression, Depression. So they mess up their policy on trade so badly that in 1934 they passed a law giving tariff power to the president, giving the president the ability to change tariff levels. And basically Congress has given up on setting tariffs ever since then. They gave it to the president and he has a lot of unilateral power. And now we're sort of paying the price for that in that Trump basically can set tariff rates depending on how he feels that morning. And it's not set by law. It's not something that's stable. And it's put into this arena of being a political football to be used for his own inscrutable purposes. And I think that's one of the problems that we have right now is again when you start getting these trade wars and using them as a political, as for political purposes, you create this incredible uncertainty and chaos.
[00:45:49] Speaker A: Okay, great. We have about 10 minutes left, so and I think we've done a good job getting to most of the questions that were in the chat, but there were two that I wanted to just sort of bring up and get y opinions on that I think are interesting was one was earlier by Ilia Shin which was asking more. So is what manufacturing has gone overseas to places like China, is that just because it's cheaper or could there be other factors that are probably better reasons why it's happened, such as increased regulations and what can't be built and the big regulatory state.
[00:46:27] Speaker C: I think the regulatory state and controls on energy are hugely important. So if I was, I also wrote a piece, maybe you can find this out, Lawrence, that on was what would free market industrial policy look like? And so if you actually wanted to revive manufacturing instead of putting on tariffs and I think this is a good point to make because you know, to the extent that industry in America has been held back, it's not because we had too much free trade. It's because we had too many restraints on trade imposed by our own government. You know, too much regulation and especially too much control of energy. By the way, Germany is in terrible shape right now. They're having a real problem right now because they've shut down a bunch of their power plants. They went anti nuclear, got rid of a bunch of the nuclear power plants and they're having an energy shortage that's hurting, you know, one of their, one of the great industrial powerhouses of the world. They're hurting themselves by not having enough energy. We've done the same thing too. So one thing I would say is yes, we should. Absolutely. And somebody else mentioned infrastructure in the United States. The state of infrastructure is terrible. And is that because we've de industrialized and we have too much free trade? No, it's not. Because nothing to do with free trade actually doesn't even have that much to do with energy or regulation that has to do with regulation on the local level. Nimbyism is the great enemy of infrastructure in the United States. The reason why we don't have better bridges and roads is primarily because you have all these local regulations and all these local permissions that you have to get and environmental impact studies and you know, mountains of paper and years, years time. You know, the great example of this is high speed rail in California. You know, they put billions and billions into this thing. And they got to Bakersfield, they didn't get from LA to San Francisco, they got from like Merced to Bakersfield, you know, these two relatively small towns, cities that they've connected with high speed rail or they've begun to connect with high speed rail, but they're not getting anywhere near, you know, the advantage. And it all gets bogged down in NIMBYism and in local regulations. You can't get the permission to do that. You can't get the permission to do that and the unions want their cut and you know, all the, the costs pile up. So yes, that is absolutely something. I think it's worth mentioning that, you know, one of the reasons why we're not competing as well in manufacturing as we could is because of all the ways in which we limit ourselves. But I also want to say that on top of that, there's the fact that we are in fact a very wealthy society. And in a very wealthy society, people have a lot of different options for the work they do. They have optional options to get paid well. So labor is going to be more expensive in a wealthy society. Right? So, so it is, it is absolutely true that labor is always going to be more expensive in America because we've done a lot of good things right in the past and we've become a wealthy country. So yes, other countries are going to have advantages on labor costs and that's okay. I mean, that's the way the way a global economy works is that again, the stuff that's very intensive in labor but not very productive, send that overseas, keep the jobs. And this is a lot of what we've done. Keep the manufacturing jobs that are, require higher skilled labor, that are more productive, that are higher paid, and that's, those are the things that make sense for a wealthy society to be doing.
[00:49:45] Speaker A: Okay, great. Another question here that might be getting way too much into the weeds on the nitty gritty details of economics, but I thought I'd bring up was this is a question by Alan Turner, who is essentially talking about fiat currency and the US as the global reserve currency. Essentially instead of the argument everyone uses the US dollar and they want the US dollar. So that means the US dollar is not in the States because every other country has it, which he is saying basically the only way we can get more dollars done in the US is if we start printing more, which makes everything even worse through inflation. Is there anything that you've sort of researched where you've seen that argument about the whole problem with that or what are your thoughts?
[00:50:31] Speaker C: Well, I'm going to say it very briefly. I think it's a small issue, but being the global reserve currency is great for us. It means people want to put their money in the United States.
One of the great myths of trade is the idea of the trade deficit. The trade deficit, it's a deficit, it sounds bad. Actually. What the trade deficit means is that people are selling us their goods, they're importing goods and selling them to us, and then they're keeping their money in the US and investing. It's. So what it basically means is we, it's a trade deficit is actually an investment surplus. It means we have a lot of people from the rest of the world wanting to put their money into the almighty dollar and to have it invested in the well, they loan it to the US Government, which is not necessarily a great thing, but they also loan it to American businesses. And so they put their money in the US where it helps to provide us with investment capital. So that's. The trade deficit is actually a investment surplus. It's a good thing. It's a sign of the strength of our economy. And that's one of the most misunderstood things because people see the word deficit, they think, oh God, we're losing. We're being, we're being ripped off. This is Donald Trump. He invented what Canadians are ripping us off at $200 billion a year. Nobody knows where he came up with the $200 billion. By the way, there's like a 60 billion dollar trade deficit with, with, with Canada. And it's mostly because they sell us a lot of oil, which is again, good for us, that we're getting their oil. But the point is. Now this goes to the last philosophical point I want to bring up and David to chime in on, which is I said, you know, one of the philosophical ideas behind this is the static view. Things should be the way they were in 1950. If we were once, America was once a great industrial powerhouse. We should always be an industrial economy. We shouldn't be doing any of this, any of the services stuff. That's nothing. And even if it makes more, even if it's more productive, even if it makes more money. So this idea that nothing should ever change and change is bad and dangerous. The other one is what I call a zero sum view of the world, which is if somebody else is making a profit from trade, then we must be losing, right? So all trade assumes a positive sum. It assumes that I'm trading something from to somebody else and I'm making money by selling it and there. And it's a value to them to have it. So both of us are profiting from this. You know, that's all the essential idea of trade is mutual advantage. We're both getting something. You know, I'm getting Portuguese wine, the British are getting Portuguese wine, and the Portuguese are getting British cloth. Everybody getting something that they're better off getting, right? Everybody's profiting from this. But there is a zero sum mentality. I think Donald Trump has this in his bones. This is the. Well, notorious is the way he likes to do business, is that he doesn't think he's winning unless somebody else is losing. And if, if somebody else is winning, then he assumes we must be losing. And that's this idea that other countries have been ripping us off with trade. And this is not the way an economy works. It's not the way human life works. The way human life works, when it's working properly is everybody benefits that we engage in trade where, you know, you do your work and you're able to be more productive. And, you know, think of my early primitive example. You're the blacksmith and you're trading with the farmers. You know, you're able to specialize in your trade and become better at it and become a better blacksmith and make better tools and more tools. And then you trade it to the farmers who are able to use that to grow more crops and to, to do, you know, to, to more easily and more productively grow their crops and get more grain, which then are able to trade with you so you can build even more tools and they can then make even more grain. And everybody is profiting from this mutual trade, from this mutual cooperation. That's the way the human life works. And that's how connected to that idea of the static economy. That's how economies grow and develop and evolve and get more sophisticated over time and everybody gets wealthier. But there is again, there's, you know, when you think about it, for most of human history, we talked about going all the way back to the Bronze Age. And David went before the Bronze age, going back 10,000 years. For most of human history, change has, change in progress has occurred, but it's been very, very slow. It happens on a scale of centuries. And you know, it's like one century might, you know, people in 16 and 1700 might be a little better off and a little more advanced than they were in 1600, but it was happening very slowly. And so in your life, you know, the average lifetime was much shorter than that. So in your lifetime, everything would stay pretty much the same. You know, things wouldn't change very quickly. And I think that created a bias that humans have to think everything's always going to be same, it's always going to be static, it's not going to develop where I'm going to do the same thing my parents did, and they're going to do the same thing their grandparents did. And with the Industrial revolution comes along and suddenly change gets supercharged and it goes much faster. And you get to this point where, well, my grandfather was on a farm and then I'm in a factory, and then my, my grandson might be, you know, working a tech job. Right. So that things change. And I think we, we're still having trouble, you know, sort of epistemology on the epistemological level, on our basic thinking method. We're having trouble adjusting and adapting to regarding that rapid change as normal and as good and as fine because the change has mean, the change means that, you know, we have become more productive, we become wealthier society, we have more options to things that we can enjoy in life.
[00:55:58] Speaker B: Yeah. Rob, I would just like to. One thing of that. I mean, I think you're absolutely right about the epistemology. It happens, change happens.
I mean, it's happening amazingly fast now. But, you know, I say amazingly fast compared to, you know, what it was when I was young. I mean, I grew up writing all my papers on a typewriter.
There was no, no computer, no Internet, no nothing. But, but the thing is, even when people are living through an era of change, they tend to imprint on the things that are important to them as individuals, that struck them as individuals. They, it's called accommodation. In psychology, you get used. You can only focus on a few things at one time and you focused on what's new, what's important.
And, but you, meanwhile, you're taking for granted the world that you were born in and you know, and the world you've experienced two years ago and three years ago. And it's, it's very hard to say, to realize these aspects of innovation and progress when they're, they may be happening around you, but they're not, you know, necessarily part of your life. And you get used to a certain way of living in a certain kind of environment, certain way of doing things. And so I think on top of the, the, the, the, the slow speed of change historically, there's also this psychological adjustment that people get it. You know, they get that in their head, that's how, that's how life is.
I've seen that so many times in, you know, in different areas. But anyways, I, that's, that's a more psychological aspect, but it's, it also has to do with our knowledge and expectations, like epistemology.
[00:57:59] Speaker C: Yeah, I think it's, it's funny, it's something I've noticed in science fiction where, you know, science fiction is supposed to be imagining how things change in the future, but oftentimes they're very, you know, they. When you see science fiction from. Actually Douglas Adams coined the term for. It's called the Z Rust, which is the peculiar data disk of something that was most once supposed to be futuristic. You go to like, you know, the first Star Trek episodes. You know, you're in a spaceship, you're going fast, the speed of light, you're traveling the galaxy and everything is controlled with these Bakelite toggle switches, you know, which was the state of the art in 1960.
They just couldn't, you know, they couldn't imagine what a modern computer interface was. Or one of the later Star Trek movies. They had it more updated. They had a computer display that was the state of the Art in 1982. It looks horribly dated now.
So again, you can imagine some things leaping forward and changing and becoming much more advanced. But there's so many different aspects of life that change that you can't even imagine and you can't accommodate. And yeah, people tend to have that bias of thinking everything's going to be the same.
[00:59:04] Speaker B: Yeah. Well, that reminds me of a. Something I've seen fairly often in science fiction stories, which is a world that is super advanced technologically and is governed by a king. Yeah, come on.
[00:59:22] Speaker C: Yeah. The medieval swords and sandals or you know, it's sort of the equivalent of people fighting with swords in.
[00:59:29] Speaker B: Yeah.
[00:59:30] Speaker C: In a science fiction thing. Yeah. That this sort of. You set a medieval fantasy in a super hyper technological future.
So. Yeah, again, if people cannot imagine the pace of change and they can't imagine, they want, they want to think I'm going to still be doing the same things. You know, my kids are going to. Grandkids are going to be still doing the same things 100 years from now that I'm doing now and that if it changes, it will be bad. And that's. I think that the, you know, not taking into account that. No, actually it will change radically and that will be good. It will probably be progress.
[01:00:04] Speaker B: The best example of the fallacy of that way of thinking Is the, the famous bet that Julian Simon made with Eric somewhat.
[01:00:14] Speaker C: Yeah.
[01:00:17] Speaker B: That the price would, price of all these metals would go down. And he took that to. Right.
Anyway, I, I know we're out of time, so I'll, I just want to thank everyone for taking part and I, and Rob for doing the heavy lifting here on, on this trouble. Troublesome but very current issue.
[01:00:41] Speaker C: You know, like I said, I'm working on a pocket guide for this that outside is going to put out where I'm going to cover a lot. And this is a good thing to talk it out and sort of get the questions from people and see what, what are all the things I need to answer. I'm sort of in the final stages of working on this, so hopefully that'll be out in the next month or so.
And again, it's, it's, it's, it's a, it's an issue where people tie themselves into a lot of knots and miss a lot of the. Again, I think go back to Bastia's point that they see the disadvantages and they don't see the advantages of trade or they see, you know, the benefits that come from particular protectionism over here. They don't see the cost of it. And that's why I think this issue needs to be discussed in more depth and people need to sort of change their way of thinking about it.
[01:01:25] Speaker A: Well, I'm certainly looking forward to getting one of the first opportunities to look at the pocket guide when it's ready to come out. So. Yes, and as Rob said, should be coming out soon. So if you aren't already doing so, be sure to follow the Atlas Society through our newsletter, our website and our social media so you can stay up to date with all stuff like that, including our latest publications. And again, David, Rob, thank you so much for doing this webinar today and for all of you, I appreciate the questions you sent in. So if you enjoyed this video or any of our other materials, please consider making a tax deductible donation@Atlasundity.org donate that helps us with everything we do. And be sure to join us next week when Jennifer Grossman will be back and she'll be interviewing Sally Pipes about her new book, the World Medicine Chest, How America Achieved Pharmaceutical Supremacy and how to Keep it. We'll see you then.
