If You Hated Calculus in School… You Know Everything There Is to Know About Trade

The nightmares are all the same. I wake up at some ungodly hour after dreaming about a looming final exam. Math was my worst subject, so the test will invariably cover numerical concepts never understood in classes sparsely attended. Some hate to have their sleep interrupted, fearing that there will be no more. In my case a sleepless night is better than the agony of a cruel dream that just won’t die. And the odd thing is, the last time I attended school was during the Clinton administration.

Night terrors related to classes that once highlighted my ineptitude seem a good jumping off point for a discussion of trade – and the accounting abstractions that witless economists have invented to express trade balances. The most disagreeable aspects of school explain the endless brilliance of free trade better than any stack of economics textbooks.

Free trade allows us to do what we enjoy doing – instead of what we’re assigned to do – and what we have to do. Free trade makes going to work feel more like going to school and only taking the classes we love. In my case, I strutted into high school and college classes covering politics and economic policy, but I seemed to shrink a foot (and enough IQ points to drop into double digits) as I reluctantly darkened the doors of classes that had anything to do with math and science. Back then, the act of attending class had a binary quality: thrilling when in my element, humbling when not.

It’s also a reminder of the genius of free trade. Free trade means, in essence, that we have the whole world competing to take our math classes for us!

With free trade, the world is competing to serve our needs easier, cheaper, and faster. Meanwhile we get the “good grades.” As cash and effort costs are lowered, the value of our paychecks grows.

Having the world’s most talented people fighting for our business is wonderful, but it’s not the greatest thing about the freedom to import (without politicians taking their cut).

The greatest thing is that we’re freed from having to do what we royally suck at doing. We have fewer and fewer sleepless nights and nightmare-filled slumbers, thanks to our work being more and more a reflection of our individual talents.

Free trade is capitalism’s way of giving us a career-long exemption from the math class equivalent so that we can focus all our energies on the equivalent of PE or lunch. For me, this means taking public-policy classes for life. Imagine what school would have been like if you had been encouraged – in fact, required – to avoid any instruction that made you look bad, hate school, dread Sunday evenings, or all three. And for a sense of what life is like when allegedly caring politicians shield their citizens from the world’s plenty, just imagine going to a school where the only class taught is calculus… Forever.

(Of course, if you happen to love math, you’ll have to reverse everything I just said. Strike out “calculus” and substitute “civics.”)

But, speaking of calculus, it’s interesting that our ancestors – largely illiterate and innumerate though they were – had a good understanding of that subject. They could accurately predict what the curve of their life would be. Only 200 years ago our ancestors lived in a world without rapid exchange of goods and services across regional and national boundaries. And our lives were inexorably mapped out. This was true even in rich countries like the United States. Despite America’s seeming plenty, most people didn’t spend much time contemplating what they would do when they grew up. They knew that once able, they would likely work from dawn to dusk, six days a week, on a farm.

Crude technologies and primitive transportation systems limited mass production and curtailed our ability to exchange the goods and services we produced for the goods and services produced by others. Very few of us could avoid being limited to doing only what we had to do, and most of what we had to do was back-breaking and un-remunerative. Inability to trade meant that human effort was directed toward the production of food. It didn’t matter whether or not we enjoyed farming, it was just what we did, regardless of our actual or potential skills. The world’s inhabitants worked the fields out of necessity.

Then came mechanized farm machinery and chemical fertilizers. Yes, this destroyed hundreds of millions of farm jobs. But those workers weren’t forced onto the dole. They were freed from mindless labor that had little to do with their abilities.

In concert with technology that liberated people from the fields, technology that enhanced global trade proliferated in the form of steamships and deep-water ports, trains and rail networks, trucks and highways, airplanes and airports. The world “shrank,” and global commerce exploded. The division of labor that is the basis of trade revealed itself in skills that had been smothered by the inability to exchange goods and services. Specialized individuals the world over were able to produce and be produced for. Work itself became more and more a reflection of workers’ unique talents, and productivity soared.

When you’re free to buy things you can’t produce, you can focus on what you do best in order to pay for those things. And when you’re doing something that amplifies what’s unique about you, your productivity naturally rises. It’s no longer just “work.” Is it any wonder that free-trading countries are so prosperous? It shouldn’t be. In the parts of the world where individuals are most connected to the rest of the world, those individuals are most likely to be doing what individually lifts them up the most.

“Free trade” is a rather humble phrase for the rather noble concept of people bettering themselves by doing their best in order that others may do the same.

However, to understand free trade, it’s crucial to realize that the goal of working is to get – to import. If you’re a worker (at anything except subsistence agriculture), you’re an importer. The importing could be from across the street, or it could be from around the globe, but importing it is. And the more that we can import whatever we need and want, the more we can direct all our efforts to the kind of toil most commensurate with our skills. Imports are a signal that we’re working better. Imports are a sign that we’re improving.

Which brings us to the false notion of a “trade deficit.” It should be called a “trade benefit.” The supposed “deficit” is actually an indication that the workers in the country with the deficit are doing better work than the workers in the country with a trade surplus.

Consider a depressed city like Baltimore. As people who’ve ridden the Amtrak train or watched The Wire know, Baltimore is in many ways a failed city with low productivity by any measure of “Gross Urban Product.” But enormous amounts of money flow into Baltimore in the form of government welfare and entitlement payments. Baltimore has a huge trade surplus.

But imagine if Jeff Bezos had moved Amazon’s HQ2 to Baltimore. The city would have been “importing” billions of dollars of Amazon capital. If Bezos had moved to Baltimore, the city’s trade deficit would have skyrocketed.

Trade deficits are an effect of surging investment into a city, state, country, or continent. A trade deficit is a sign that productive workers are attracting the capital that will multiply their output. (Just as Baltimore’s trade surplus is a sign that its workers aren’t as productive as they should be.)

The U.S. is largely a global open market. (This remains true even in the age of trade-barrier threats from Donald Trump.) Our workers are unusually productive. This has proven to be an enormous lure for investment. As a result, America, more than any other country, exports its stock shares and bond issues to investors around the world. They are eager to apply their wealth to the most talented workers on Earth. The investment that flows into the U.S. enhances our output in the way that a tractor would enhance the output of the farmer who’d formerly used a mule.

The problem – a wholly theoretical, not to say imaginary, problem – is that the export of stocks and bonds doesn’t count in the calculation of U.S. trade balance, but our import of shoes, socks, and t-shirts from China does. Basically, China and other enterprising nations make certain prosaic goods for us because those goods aren’t worth our time and effort to produce. These imports free Americans to create Microsoft, Amazon, Apple, and Google. We have trade deficits because the United States is populated by the best workers and best businesses in the world. And these workers and businesses have global capital showered on them.

Trade deficits are a sign that we’re the biggest badasses on the planet. We’re worshipped by the world’s capital allocators. Their copious investment in all that we do and think about doing (see Silicon Valley) means that we’re highly liquid in our pursuit of the world’s goods. The trade deficit is a happy signal that incredibly productive Americans found a way to avoid the work equivalent of the classes they despised in school and can now pursue the subjects they can’t get enough of. By doing what we love and what elevates us, we’re the recipients of an investment without which there is no growth.

To reduce America’s trade deficit would be to lobotomize tens of millions of American workers and cut the arms and legs off the rest. The imports that flow into the U.S. are not just a sign of our greatness, but an even more powerful signal that we’re getting better all the time. Imports endlessly benefit us because they free us from taking the nightmare test that we’re not prepared for day after day after day.