Acton Institute Powerblog

How Free Trade Helps the Poor

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Several years ago economist Bryan Caplan provided the most succinct and helpful statement about how we should think about free trade: “We’d be better off if other countries gave us stuff for free. Isn’t ‘really cheap’ the next-best thing?”

As with any simplification, critics could find many reasons to grumble about what that leaves unstated (e.g., trade leads to offshoring of jobs). But it highlights an important point about why free trade matters. Free trade is about as close to a “free stuff” economy as you can get in the real world.

A primary effect of free trade, as Tim Fernholz says, is that when companies hire or set up factories abroad to take advantage of cheap labor elsewhere, Americans’ real income goes up because a lot of the stuff they’re buying is cheaper.

In fact, some economists estimate that thanks to trade, average consumers in the US are 5.6% better off than they would be otherwise, in terms of real income. And because Americans who earn less money purchase more consumer goods, as a share of their total income, than the wealthy, they actually benefit disproportionately.

Here’s another way to think about. Imagine you’re a single parent in Iowa raising two kids. You earn from your job $20,090 a year, putting you right on the bubble of the poverty line. Now imagine you get a check in the mail at the end of the year for $1,125 from a benefactor named “Free Trade.” Would you consider yourself better off because of free trade?

This is how those of use who are fortunate to be above the lower rungs of the economic ladder should think about the issue. If you make $50,000 a year, an extra bump of $2,800 is helpful, but not likely to be life-changing. But for those who are near the poverty line, a boost of nearly six percent every year can have a significant impact on your standard of living.

Joe Carter

Joe Carter is a Senior Editor at the Acton Institute. Joe also serves as an editor at the The Gospel Coalition, a communications specialist for the Ethics and Religious Liberty Commission of the Southern Baptist Convention, and as an adjunct professor of journalism at Patrick Henry College. He is the editor of the NIV Lifehacks Bible and co-author of How to Argue like Jesus: Learning Persuasion from History's Greatest Communicator (Crossway).