Today, a strawberry and a chicken story…
This morning, I had strawberries in my yogurt. Last night, I sliced an avocado into my salad. The reason is free trade.
Thinking of the fruits of free trade, we can think of strawberries. Without NAFTA and a free trade agreement with Chile. we would be eating far fewer avocados, cantaloupes, grapes, mangoes, papayas, limes, blueberries and watermelon.
What we are really talking about though is variety. Once we can import what we also grow and make at home, our selection multiplies. So we wind up with Japanese and German cars and Tesla. We have U.S. strawberries and Mexican strawberries.
But there is more.
More variety means more competition. And then usually, but not always, we have more productivity, more innovation, and lower prices.
The flip side is this chicken story.
The time it took to fatten a chicken decreased by two weeks from 1948 to 1951. By 1973, you needed only 8 1/2 weeks and breeders had figured out a “factory chicken.”
You can see the trend. During the 1950s, the U.S. became the pacesetter for mass producing chickens. But when we flooded Europe’s chicken markets, the European Economic Community levied a whopping 13.5 cents/pound tariff on frozen chicken imports.
Targeting Volkswagen, in 1963 we retaliated. After the VW Beetle charmed the U.S. consumer, their next export was supposed to be a commercial vehicle. But it never happened because of a 25% U.S. tariff that mostly affected light pick-up trucks.
The result: With little foreign competition, domestic truck makers could charge more and innovate less.
Our Bottom Line: A Pencil
In a 1958 essay, a pencil says to us, “Pick me up and look me over. What do you see? Not much meets the eye–there’s some wood, lacquer, the printed labeling, a graphite lead, a bit of metal, and an eraser…”
Continuing, though, we learn a pencil is not as simple as it first appears. Made from trees in Oregon, it requires some millwork and tint, graphite “lead” from Sri Lanka, clay from Mississippi, and rubber-like erasers from Malaysia.
Asking why so many people cooperate when they don’t even know each other, Nobel Laureate Milton Friedman (1912-2006) said, the price system. When people can trade freely, prices create incentives that encourage them to work “together.”
Below, Dr. Friedman explains:
So, asked about fruit, chickens and trucks, you might say the pencil has all the answers.
My sources and more: I started contemplating the pluses of trade after a walk with this Tyler Cowen podcast. Cowen’s talk with Doug Irwin reminded me of this Mankiw column in the NY Times which took me to this paper. As for the chicken tax, you might enjoy (as did I) a Smithsonian article and this one from the NY Post on chicken history.
Please note that several sections of this post were previously published at econlife.