Page 197 - The Principle of Economics

CHAPTER 9 APPLICATION: INTERNATIONAL TRADE 199
the course of about three years we changed from being a country run like a Polish shipyard into one that could be in- ternationally competitive.”
Since the 1980s, Hong Kong’s and Singapore’s enormous successes as free traders have served as potent ex- amples of unilateral market opening, en- couraging Indonesia, the Philippines, Thailand, South Korea, and Malaysia to follow suit. By 1991 even India, which has been astonishingly autarkic for more than four decades, had finally learned the virtue of free trade and had embarked on a massive lowering of its tariffs and non- tariff barriers.
In Central and Eastern Europe, the collapse of communism led to a whole- sale, unilateral, and nondiscriminatory re- moval of trade barriers as well. The French economist Patrick Messerlin has shown how this happened in three waves: Czechoslovakia, Poland, and Hungary liberalized right after the fall of the Berlin Wall; next came Bulgaria, Ro- mania, and Slovenia; and finally, the Baltic countries began unilateral opening in 1991. . . .
U.S. leadership is crucial to main- taining the trend toward free trade. Such ultramodern industries as telecommuni- cations and financial services gained their momentum largely from unilateral
openness and deregulation in the United States. This in turn led to a softening of protectionist attitudes in the European Union and Japan.
These developed economies are now moving steadily in the direction of openness and competition—not be- cause any officials in Washington threaten them with retribution, but be- cause they’ve seen how U.S. companies become more competitive once regula- tion and other trade barriers have fallen. A Brussels bureaucrat can argue with a Washington bureaucrat, but he cannot argue with the markets. Faced with the prospect of being elbowed out of world markets by American firms, Japan and Europe have no option but to follow the U.S. example, belatedly but surely, in opening their own markets.
The biggest threat to free trade is not the loss of fast-track per se, but the signal it sends that Americans may not be interested in lowering their trade bar- riers any further. To counteract this atti- tude, President Clinton needs to mount the bully pulpit and explain the case for free trade—a case that Adam Smith first made more than 200 years ago, but that continues to come under attack.
The president, free from the bur- dens of constituency interests that crip- ple many in Congress, could argue,
credibly and with much evidence, that free trade is in the interest of the whole world, but that, because the U.S. econ- omy is the most competitive anywhere, we have the most to gain. The president could also point to plenty of evidence that debunks the claims of protection- ists. The unions may argue that trade with poor countries depresses our work- ers’ wages, for example, but in fact the best evidence shows that such trade has helped workers by moderating the fall in their wages from technological changes.
Assuming that the president can make the case for free trade at home, the prospects for free trade worldwide remain bright. The United States doesn’t need to sign treaties to open markets or, heaven forbid, issue counterproductive threats to close our own markets if oth- ers are less open than we are. We sim- ply need to offer an example of openness and deregulation to the rest of the world. Other countries will see our success, and seek to emulate it.
SOURCE: The Wall Street Journal, November 24, 1997, p. A22.
The inventor is hailed as a genius. Because steel is used in so many products, the invention lowers the cost of many goods and allows all Isolandians 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 en- ter new industries that emerge as a result of higher Isolandian 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 mysteri- ous new steel process. She sneaks into the inventor’s factory and learns that the in- ventor is a fraud. The inventor has not been making steel at all. Instead, he has