BABU/Reuters
There are two technologies for producing automobiles in Canada. One is to manufacture them in Ontario, and the other is to mine them in British Columbia. Everybody knows about the first technology; let me tell you about the second. First, you dig up coal, which is the raw material from which automobiles are constructed. Then you load the coal onto ships, and sail the ships westward into the Pacific Ocean. After a few months, the ships reappear with Hyundais and Kias on them.
International trade is nothing but a form of technology. The fact that there is a place called Korea, with people and factories, is quite irrelevant to Canadians' well-being. To analyze trade policies, we might as well assume that Korea is a giant machine with mysterious inner workings that convert coal into cars.
The preceding paragraphs are adapted from Steven Landsburg's Iowa Car Crop.
The Stanford economist Paul Romer -- whose seminal work on the economics of technical change inspired what came to be known as endogenous growth theory -- says that when he came to economics from physics, he was puzzled by what economists called 'production'. After all, nothing was actually being created; all that was happening was that existing matter was being reshaped into forms that were more valuable to us. What we call technical progress is not -- as economists usually say -- 'producing more with less'; it's the creation of different ways of reorganizing what is already there.
If you think of different technologies as simply different ways of moving productive resources around, then the parable of the Iowa car crop becomes a more natural way of looking at international trade. It also makes clear that those Hyundais and Kias are just as Canadian as those made by workers in Ontario. The effect of restrictions on "imported" automobiles is to penalize the workers in British Columbia who make them.
To extend the analogy even further, protectionism is just another form of Luddism. We know that these are misguided doctrines in the long run, but their short-run appeal can be considerable. The adjustment costs associated with new trade opportunities and new technologies are often large, and not everyone benefits. But suppressing trade is no more a path to long-run prosperity than is suppressing technical change; the remedy to these short-term problems is to offer whatever support we can to those who are obliged to suffer the transition costs.
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