What if China Gave Every American a Free Car!?!

A quick anecdote on the benefits of unilateral free trade: When your country lets in imports, untaxed, no matter how the other country does it--even if they subsidize exports to you, even if they tax yours to death.

Unilateral free trade has been shown to be beneficial to the country that has it. That means, even when the market is not free on the other side. It passes the logic test too. Here is a quick exercise.

Imagine a world where you must pay for air to breath. Maybe it's on another planet. There is a whole multi-billion dollar air industry. There are pipelines for air, trucks delivering air to more remote locations. There are air processing plants with millions and millions of workers. Something like 10% of the world population works in the air business and related infrastructure and inputs.

Now, imagine someone taps into a massive cavity in the planet and releases enough oxygen into the atmosphere that everyone can now breath for free. Over night, the entire air business goes under. All of that capital plant and equipment and even technology becomes worthless. 10% of the people are out of work--Bastiat's Seen

Is the world better off or worse off?

Sure, temporarily having a loss of value in capital for its owners really sucks. Being out of work really sucks. To really answer that though, ask the question in reverse. Would you be better off today, if you had to pay 10% of your income for something you now get for free--air in this case? Of course you wouldn't.

So over night, 100% of the people would be better off in that they would not have to pay for air. (not just 90%, every person). With all of this extra money, (Bastiat's unseen) people can buy other products and services. Investment capital and people can now produce things that it and they did not produce before. Now people can have their air and whatever else the capital and people produce in addition to the air, which is now free.

The same effect would happen if China, for some strange reason, decided to give every American a free car. It would put most of the US car business out of business but the economy would suddenly be much better off. To a lesser degree than free, anything we can get from China, for less money than we have to spend to buy it made locally, benefits us in the same way. This is true, no matter how it got cheaper--even if China robs all of its citizens at gunpoint (taxation) and uses the money to make it cheaper for Americans to buy things.