Macro Economics 101 (Trade for Dummies)
Remember this class in Economics 101? I can’t make shoes that I can sell at a competitive price, but I can sure make socks. You can’t make socks at a competitive price, but you can make shoes that my customers will buy. So, my store will buy shoes from you and your store will buy socks from me. We will both sell them to customers and make a few dollars. Does it matter that socks are much less expensive than shoes?
Countries have competitive advantages over each other for many reasons. Perhaps raw materials are more readily available in a certain region. A developing country may have less expensive labor for many reasons. Perhaps an emerging country only has a semi-literate population or a population that wants to work at a sewing machine or lathes for a dollar an hour because that 40 dollars a week will feed and house their family. Trying to sell them a cell phone or laptop or television may not be what they want right now. Perhaps in 10 years, they will grow into the perceived need for these things.
To judge whether a trade is a win-win should not be about who sells more than they buy, A win-win is when both sides come away with a smile and a sense that both can feed their families. A balanced trade is just that, balanced in fairness and with good intentions.
If I sell you $100 in socks and you sell me $100 in shoes we both win. That is balanced trade. When you sell me $1 Billion in electronics and I sell you $1 Billion in aircraft, that is balanced trade. If I sell you $1 Billion in electronics but don’t need aircraft because my country is an island with unpaved roads, is that unfair trade?
Trade deficits are finicky things. Remember the old saying: “There are lies, damn lies, and statistics”? We are hearing a lot of “Statistics” being bandied about by people who have an agenda about trade and are pulling the wool over the eyes of those who perhaps were ill for that Economics 101 class.
Tell me, do you really want 50 million jobs for people sitting at a sewing machine? How about handcrafting an automobile like they used to call “coachwork”. Do you want your kids to be engineers and doctors, or work on a farm? We need plumbers and carpenters, electricians and mechanics too.
Trade works best when it is unencumbered by win-lose mentalities. One of the main reasons the great trading nations lost their advantage is that they had a win-lose mentality and eventually someone else decided to make shoes better, faster, cheaper and took your business away. They discovered how to make your shoes better, faster, cheaper. Ironically, they probably bought the machinery to do just that from the same company who sold you your machines.
So, what is your competitive advantage in the world? Software, IT, Engineering, Medical research, Aerospace? Buy the socks from your neighbor and sell them the products that they want that you can make some profit with. That is Economics 101 for Dummies.