Pan Deng
International Trade
Dr. Manish
04/21/2015
A Review of Donald J. Boudreaux's Globalization (Greenwood
Press, 2008)
Introduction
While the benefits of free international trade and globalization are diffuse and in most
cases invisible, the benefits associated with shielding specific groups from foreign competition
are most often immediate and easy to see. This illusion has increasingly fueled the common
perception by majority that free international trade is detrimental forcing them to impose
countless tariffs, quotas and other barriers to trade. In this book, Donald J. Boudreaux reviews
the various benefits associated with freeing and increasing international trade by addressing most
of the pervasive myths that are embedded to the free trade debate.
Why people trade: The economics case for free trade:
In addition to providing answers to many objections raised to globalization including its
impact on the environment, job growth, wages, and deficits in trade, Boudreaux challenges the
commentators of the libertarian and conservative persuasion that with the rebirth of economic
nationalism, they have no option but to sharpen their arguments in favor of free trade. Boudreaux
starts by defining globalization as the advancement of human cooperation across national
boundaries and clarifies further that every man-made thing we see around is a combined effort of
millions of people around the world who specializes in their narrow economics. Explaining on
this increased proliferation of global production and supply chains, Boudreaux explains that
while Nokia is a popular brand fro Finland and Dell is a well-known American brand, none of
these makes and/or assembles most of its components in Finland or in the United States
respectively rather while some components of these products could have been produced from the
home country, component production and assembly operations are from different locations
across the global factory floor. Another example given is whereby while the Chinese-born
computer company, Lenovo has its executive headquarters in Singapore, North Carolina and
Beijing, its research operations centers are based in China, United States and Japan and its
operations assembly are in Poland, Mexico, China and India (Donald, 2008, p. 35). According to
Boudreaux, to call Dell an “American” or Nokia “Finnish” or Lenovo “Chinese” is to overlook
the broader point that these companies are global entities with not only facilities but also stakes
and employees in dozens of countries. The point here according to Boudreaux is that regardless
of the location of the company’s headquarter or its affiliated country, such products have foreign
value-added (Donald, 2008); Boudreaux asserts:
Every “man-made thing you see is something no one person could possibly make alone.”
That being the case, the shirts we wear and the food we eat are the happy result of
millions of people around the world engaging in their narrow economic specialties such
that we’re clothed and fed” (p. 7).
Boudreaux makes the reader to realize the unimaginable poverty that would arise as a
result of economic isolation. The author here conceptualizes that it is because we can freely
exchange our individual output (what we can do best) with the world’s citizens that we make our
lives easier and cheaper. In short here, Boudreaux was advocating for the reduction of trade
tariffs and other barriers and broadening of world’s division of labor explaining that it is as a
result of economic specialization that makes goods more plentiful and subsequently cheaper
(Auer, & Fischer, 2010).
Trade, jobs, and wages:
On trade and wage front, Boudreaux identifies the high association between openness to
foreign trade and material prosperity attached to people. This was based on figures computed
between 1980 and 1998 that showed that those countries that had minimal or no barriers to
exchange recorded higher average annual per-capita income as compared to those economies
most closed to trade (Donald, 2008,). According to Boudreaux, when trade is free i.e. when there
are no trade restrictions in terms of tariffs and others, workers are better placed to specialize at
one task while allowing others to specialize in other areas where they have increased
comparative advantage (Auer, & Fischer, 2010). This as the author explains is contrary to closed
market that retards this process. According to Boudreaux, apart from impinging on individual’s
freedom of deciding what and where to purchase goods, tariffs necessitates sub-optimal
allocation of resources by redirecting scarce resources to industries where they tend to produce
less value than they would have produced with free trade (p. 42). The author worries for example
that as earnings of higher wages for Americans is highly thwarted by protectionism, marketers
and consumers tend to sniff it out but is always reflected in the pay we get.
On the question of whether free trade and globalization leads to job growth, Boudreaux
clarifies that although the increase in the number of jobs is largely related to population,
government rules in regards to hiring tends to limit this growth. According to Boudreaux, free
trade results to specialization of work effort that on the other hand attracts increased investment
resulting to better jobs and higher wages (Donald, 2008, p. 56). According to Boudreaux, free
trade enables market forces ensuring that resources are allocated sustainably resulting to higher
production and consequential increase in exports that eventually helps to filing the lifestyle gap
between the poor and the rich. On the area of trade deficit, Boudreaux advocates for foreign
investment on the ground that it increases the number of potential bidders in the economy. The
meaning of this is that foreign investment does not only ensure ready market for the locally
produced goods but it also means increased access to a broader range of knowledge capable of
getting the most economic value out of the asset purchased.
Myths versus Reality about free trade; trade deficit; jobs and wealth by Boudreaux
Myth: More exports mean more wealth.
According to Boudreaux there is a myth that more exports results to more wealth;
however, Boudreaux provides the reality that it is the total level of trade in terms of exports and
imports that more precisely reflect the economic prosperity of a given economy. Basing his
argument with the economy of America, Boudreaux provides explains that increase in the
volume of exports can only result to increased wealth if it can allow Americans to buy more
imports and at the same time provide increased incentives to non-Americans to invest in
America. According to Boudreaux, restricting imports through tariffs, quotas and other trade
barriers would only leave Americans worse off (Donald, 2008).
Myth: Free trade means jobs go overseas.
Boudreaux also wanted to address the pervasive belief by many that free trade results to
outflow of jobs overseas. According to the author, neither free trade nor protectionism creates
more jobs. While free trade can free resources and create more jobs in industries that are more
efficient, in the inefficient industries, free trade can reduce jobs. On the other hand, while
protectionism in one way can be more beneficial in protecting those jobs that a given economy
cannot sustain, on the other hand it can be very detrimental because it comes with enormous cost
related to shrinking opportunities and input costs (Donald, 2008, p. 86).
Conclusion
Donald Boudreaux defines globalization as the spread of human cooperation across the
globe. According to this author, when there are no government restrictions, this human
cooperation spreads freely without any interference from political boundaries. It is clear from the
book review that Boudreaux has a positive long-term outlook when it comes to globalization.
According to this author, prosperity is guaranteed when people refuse “to let political boundaries
define economic boundaries.” According to the author, we only need to let others do for us what
is not in our economy to help achieve economic specialty and remain better off. According to the
author, free trade brings about increased specialization in production resulting to increased
economies of scale, increased number of jobs while consumers enjoy lower prices. According to
the author, free trade and the associated specialization arranges the world’s resources so that they
produce the greatest possible out put and the same time give consumers maximum access to the
produced output. According to Boudreaux therefore, trade barriers hurts more the citizens of the
markets where these barriers are imposed. Citizens in these market economies are forced to propup to inefficient producers and they end up enduring reduced access to goods while paying
higher taxes. The author ends up by postulating that restricting trade by some economies just
because other markets have done so is a bad policy.
References
Auer, R., and Fischer, A (2010) “The Effect of Low Wage Import Competition on US Inflations
Pressure,” Journal of Monetary Economics 57, no. 4 pp. 491–503.
Donald J. B, (2008) Globalization: Westport, CT: Greenwood Press, U.S.A
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