7. Free Trade and Comparative Advantage
Thu, 2011-06-16 11:32 | by ddoctor
Featured Video
Speaker
Art Carden is an assistant professor of economics and business at Rhodes College.
How does trading make people better off? Economics professor Art Carden explains in this quick lesson on one of the most important concepts in economics: trade creates wealth. Part 1 of 3.
Parts 2 and 3 are below.
Learn More
| "Trade Is Made of Win," Part 2: Cooperation: Prof. Carden examines how trade creates wealth by allowing people working together to produce more than they could individually. Using a simple two-person example, he shows another example of how cooperation during production benefits everyone. | |
| "Trade Is Made of Win," Part 3: Conservation: Prof. Carden explains how trade not only creates wealth, but also conserves both wealth and resources. When people have access to trade, they can produce the things they make efficiently and trade for the things they can't produce as efficiently. This means they are able to meet their needs while consuming fewer resources. |
- A Petition [Article]: First published in 1845, Frédéric Bastiat brilliantly demonstrates the absurdity of protectionist arguments.
- Free Trade [Article]: Daniel Griswold explains how the benefits derived from the division of labor and comparative advantage extend beyond politically determined boundaries (found on pp. 26-34).
- Free Trade and the Steel Industry [Video]:Milton Friedman makes the case for free trade at a 1978 lecture at Utah State University.
- The Iowa Car Crop [Article]: Steven E. Landsburg makes a compelling case for free trade with a simple thought experiment.
- Globalization and Trade Deficits [Audio]: A discussion between Don Boudreaux and EconTalk host Russ Roberts covering comparative advantage, winners and losers from trade, trade deficits, and inequality.
- Zions International Trade and Business Conference [Video] featuring Russell Roberts brilliantly demonstrates the inescapable poverty of self sufficiency and the massive potential for wealth creation generated by trade.
Questions
Use these questions to enhance your understanding of the topic. We recommend watching the featured video first; the suggested resources will also help.
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Comments
I like free trade, but i have a question about it. In the US we have the world's highest corporate tax rate. This is a huge domestic disadvantage. If we make a free trade rule with say another identical USA that has no corporate tax would we really have free trade? Yes there would be no trade barriers, but USA number one would lose out in the deal because of domestic issues. So I really like free trade but, in my humble opinion, we cannot win as long as we have people domestically destroying our ability to trade competitively.
We have far too many ignorant politicians who sign free trade deals and do nothing to ease the unfair domestic burden of our tax structure. In that case trade is made of screwed.
Good question, there is an entire book written on this subject alone, "Global Tax Revolution: The Rise of Tax Competition and the Battle to Defend It."
In short, no we do not have free trade as of yet. NAFTA is thousands of pages long alone, and with the disadvantage many domestic companies have tax-wise, they not only have part of their trades confiscated, but this outcome gives them an incentive to switch countries altogether.
As for the corporate tax rate itself, I was unaware of that fact until now. And for the most part, that is true. The US really does have the highest corporate tax rate in the world:
http://www.politifact.com/truth-o-meter/statements/2011/jan/03/pat-toomey/pat-toomey-says-us-has-highest-corporate-tax-rates/