Monday, October 08, 2007

US is the "Source of Cheap Exports"

I was listening to the news this morning and I heard an interview about "cheap US imports" having a negative role in the expansion of the free trade agreement through out Central America. Cheap US imports? Who would have ever thought?

The imports these countries worry about are our agriculture products. Simply put, the US is a machine when it comes to producing such goods. We are more efficient than any country in the world when it comes to agriculture. Cheap labor can't always compete against excellent organization, fantastic machines, and superior supply chains.

We complain about other countries and their unique advantages. It goes back to a concept in classical economics, which is the "law of comparative advantage." Some times economics works better for some countries than others. Such advantages are some times driven by geography (mainly what David Ricardo had in mind when he first discussed it), but it is also driven by the economic policies of the country and other factors.

The beneficiaries of our cheap goods in Central America will be the consumers. The same type of people demanding affordable goods here in the US as they hurry off to Walmart in the quest for value. I say let consumers have their cheap goods. Doing such only makes all businesses more competitive and that benefits all consumers.

When government tries to sort these issues out in the name of fairness the results are arbitrary, tensions between countries become stronger, businesses are closed, and consumers are punished. Let the market win, so we can all win.

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