How Trade Works

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  • 124 Paperback pages
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The advancement of human civilization hinges on trade. As we swap our goods and our ideas with one another, we are propelled into ever-increasing prosperity. Historically, trade has required physical routes of connection between societies, but technological advances have ushered in a new epoch of globalization and granted us unprecedented access to one another.

Do the basic principles of trade still apply in a world of such complexity? How do policies such as trade agreements and tariffs affect trade? What should we know about the "fair trade" and "buy local" movements? In "Swap: How Trade Works," Philip I. Levy and Claude Barfield answer these and other questions, starting with the basics and providing a vision for trade that continues to enhance human flourishing. "Swap" is a primer in the Values & Capitalism series intended for college students.





Chapters in "Swap"

1. Specialization and Trade
2. Comparative Advantage
3. The Impact on American Workers and the Economy
4. Does Trade Help Our Trading Partners?
5. Trade Deficits
6. Trade Policies
7. Not Your Father’s Trading System: Services, Investment, and the Role of Supply Chains
8. The Institution of Trade: International and National
9. New Issues: Labor and Environmental Standards
10. Challenges Ahead


Introduction to "Swap"

Few who read this book will go on to become subsistence farmers, grow their own food, sew their own clothes, and whittle branches for entertainment. Not that there’s anything wrong with all that. Instead, readers will likely specialize and trade. You may grow cash crops as farmers; produce machine tools in factories; or provide health care to your fellow citizens. We rarely think about how dependent each of these vocations is on trade. As valuable as machine tools may be, you cannot eat them, nor wear them, nor live in them. The only way a factory worker is able to meet her basic needs is to trade the machine tools she produces for other goods and services.

In a rudimentary economy, our worker would barter her tools directly for eggs or cloth. In a modern economy, she would receive money for her work, which is easier to store and significantly less fragile than eggs. But it is the same basic idea either way."The advancement of human civilization hinges on trade. As we swap our goods and our ideas with one another, we are propelled into ever-increasing prosperity."

It is not hard to see the gains from specialization. If a child breaks his wrist in a fall, we would not be satisfied to have it treated by the class teacher, nor the school nurse, nor even a family doctor. We would want the child seen by an orthopedist, someone who specializes in understanding the intricacies of how bones function and mend. If there are to be such specialists, someone else will need to grow their food and build their houses. The idea that individuals will specialize and be more productive is central to how modern economies function and advance.

The economist Angus Maddison provides some striking numbers about just how far specialization and trade have brought us. If we compare the United States in 1820 to the United States in 2001, early Americans were more self-sufficient, worked harder, and earned less. In 1820, they worked an average of 968 hours per person per year, versus 770 in 2001. But for each working hour, the early Americans produced $1.49 worth of goods and services in 1820, compared to $28.59 in 2001 (a comparison that accounts for inflation).

Of course, some of this growth came from great discoveries, such as how to harness electricity, how to use engines for locomotion, and how to produce disease-resistant and well-fertilized crops. Yet even such discoveries came from the specialization of scientists and inventors.

What, you may ask, does any of this have to do with international trade, with current account deficits, with trade agreements and commercial disputes? The principle is the same. Countries can specialize in producing those goods and services they can make at their lowest cost and trade with other countries for mutual gain.

Although the underlying principle of specialization and market exchange may be the same, there are some important differences when we trade across international borders rather than trading across towns.

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About the Author


  • Claude Barfield, a former consultant to the office of the U.S. Trade Representative, researches international trade policy (including trade policy in China and East Asia), the World Trade Organization (WTO), intellectual property, and science and technology policy. His many books and publications include Swap: How Trade Works with Philip Levy, a concise introduction to the principles of world economics, and Telecoms and the Huawei conundrum: Chinese foreign direct investment in the United States, an AEI Economic Studies analysis that explores the case of Chinese telecom equipment maker Huawei and its commitment to long-term investment in the US.
  • Phone: 2028625879
    Email: cbarfield@aei.org
  • Assistant Info

    Name: Hao Fu
    Phone: 202-862-5214
    Email: hao.fu@aei.org


Philip I.
  • Philip I. Levy's work in AEI's Program in International Economics ranges from free trade agreements and trade with China to antidumping policy. Prior to joining AEI, he worked on international economics issues as a member of the secretary of state's Policy Planning Staff. Mr. Levy also served as an economist for trade on the President's Council of Economic Advisers and taught economics at Yale University. He writes for AEI's International Economic Outlook series.

    Follow Philip Levy on Twitter

  • Email: philip.levy@aei.org

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