How NAFTA Facilitates Supply Chains
By David Henderson
When I teach about gains from trade, I start with two people and two goods on a desert island and work from there. Then I graduate to multiple people and multiple goods in two cities, then states, and, finally countries. I point out that the fact of borders does not change the fact that both sides gain from trade and that trade facilitates an incredibly extensive division of labor.
It seems relatively easy for people to understand that trade within a country facilitates specialization. What happens when you “insert” a border? Nothing changes, except that the border can hobble, if only slightly, the degree of specialization.
That’s why deals like NAFTA are so important. They make borders less important.
And over at Bloomberg, Thomas Black, Jeremy Scott Diamond, and Dave Merrill lay it out beautifully with a true story in which they “follow the meandering path of a single lowly capacitor, a pinkie tip-sized component that stores electrical energy.” I can’t do justice to their story, and their beautiful graphics, so go here to see more. The article is titled “One Tiny Widget’s Dizzying Journey Shows Just How Critical Nafta Has Become.”
It’s facts like these that make me very concerned when I read about Trump trade advisor Peter Navarro saying “We need to manufacture those components in a robust domestic supply chain that will spur job and wage growth.”
HT2 David Levey.