Surprise — Free Trade Works Out In The End

Despite Adam Smith’s definitive explanation of how free trade could benefit both parties engaging in trade, pretty much every society is skeptical of free trade and that other country stealing our jobs. So, today, we have the specter of some of the richest nations in the world appalled at the thought of having to compete with some of the poorest nations, and all too happy to condemn the developing world to poverty by closing off markets.

Surprisingly there isn’t actually a lot of research looking at how free trade affects industrialized countries, but Virginia Postrel published an article in the New York Times in January that explored just this topic.

She reported on an academic study of the effects of the Canada-U.S. Free Trade Agreement. The study, by Daniel Trefler of the Rotman School of Management at the University of Toronto.

Trefler’s study focused on the effects that liberalizing tariffs between the two countries had. Postrel writes,

Before the agreement went into effect in 1989, more than one in four Canadian industries were, in fact, protected by tariffs of more than 10 percent. Those industries included not only businesses known for their protectionism, notably apparel makers, but manufacturers of a wide range of products, from beer and pretzels to coffins, plastic pipes and paper bags.

Before the agreement, imports from the United States faced an average tariff of 8.1 percent and an effective tariff of 16 percent. The effective rate included import taxes on the final product and tariffs plaid on raw materials. Someone importing a chair could face a direct tariff on furniture, for example, but could also pay indirect tariffs on wood and upholstery fabric.

At the very beginning of the free trade agreement, those industries that were the most heavily protected took big hits as imports from the United States became even cheaper. According to Trefler, such industries, saw employment declines of as much as 12 percent, and the free trade agreement as a whole reduced employment by 5 percent in industries that had previously been protected by tariffs.

But, over the long run, the Canadian economy regained those jobs and has one of the healthier industrial bases in the developed world. According to Trefler,

Within 10 years, the lost employment was made up by employment gains in other parts of manufacturing. . . The average effect of the U.S. tariff cuts on Canadian employment was thus a wash: the employment losses by less-productive firms offset the employment gains by more productive firms.

And rather than force Canadian wages into a downward spiral, as had been predicted by opponents of the free trade agreement, Canadian wages increased by 3 percent over the eight years studied. A small increase to be sure, but not the predicted decline.

So what did Canadians get out of the free trade agreement if employment was a net wash and wages increased just slightly? It got a big productivity boost. Postrel writes,

The big story is that lowering tariffs set off a productivity boom.

Formerly sheltered Canadian companies began to compete with and compare themselves with more-efficient American businesses. Some went under, but others significantly improved operations.

The productivity gains were huge. In the formerly sheltered industries most affected by the tariff cuts, labor productivity jumped 15 percent, at least half from closing inefficient plants. “This translates into an enormous compound annual growth rate of 1.9 percent,” he [Trefler] wrote.

But closing plants is not the whole story, or even half of it. Among export-oriented industries, which expanded after the agreement, data from individual plants show an increase in labor productivity of 14 percent. Manufacturing productivity as a whole jumped 6 percent.

Free trade — its good for you. Even you folks in the industrial world. So loosen up those protectionist tariffs and quotas already, and give the developing world a fair chance.


What happened when two countries liberalized trade? Pain, then gain. Virginia Postrel, The New York Times, January 27, 2005.

Canadians Can Go Back to Masturbating in the Comfort of Their Own Homes

The Supreme Court of Canada overturned a man’s conviction in one of the most bizarre cases this writer’s heard of — a British Columbia man had been convicted in 2000 of indecency for masturbating in his own living room.

Two of the man’s busybody neighbors were able to witness the event through an opening in the man’s living room blinds. Of course in order to do so, first they had to uses first binoculars and then a telescope (the husband actually tried to videotape the man).

The man already served a four month prison sentence (!), but the Supreme Court of Canada ruled 9-0 that since the man clearly did not realize he was being watched — and who expects the idiot neighbors to pull out a telescope (doesn’t Canada have Peeping Tom laws?) — he was not acting indecently.

Writing for the court, Mr. Justice Morris Fish wrote,

I do not believe it [the indecency law] contemplates the ability of those who are neither entitled, nor invited, to enter a place to see or hear from the outside — through uncovered windows or open doors — what is transpiring inside.

Thank goodness it is once again safe to masturbate in the comfort of one’s home in Canada.


Court OKs masturbation at home. Wendy Cox, Cnews, January 27, 2005.

Living romo window not public, Supreme Court rules. Globe and Mail, January 27, 2005.

When I Was A Kid, We Didn’t Even Think Babies Felt Anything!

Sometimes I amazed there are any vegetarians given just how ludicrous some of the arguments advanced in favor of vegetarianism are.

Consider, for example, one Trevor Murdock who is affiliated with the Vancouver Island Vegetarian Association. Murdock is a peacenik — fair enough — and is convinced that anyone else who agrees with his political views about war would be naturally led to his views of vegetarianism. Except his argument boils down to: a) its simply obvious that animals haves souls, and b) until recently scientists thought human infants were unfeeling machines!

I’m not making this up. Murdock writes,

Anyone who has had a companion animal or stared into the eyes of a horse or cow in a petting zoo knows — deep down — that animals have souls just like humans do. Science is just now proving that animals feel pain, have personalities and emotions. These are things we all know but don’t like to admit ourselves. One generation ago science thought that animals were machines with no feelings — and in fact thought the same of human babies! With those beliefs, it’s understandable how “machines” would end up on our plates. But now that we know animals are every bit as much beings of this planet as we are, the first step to helping treat other cultures and nations with the same respect as their own is to start treating animals with the respect they deserve as living beings. This does not include “harvesting” animals in conditions of low-light, crowding, too little exercise, transporting them with methods in which a large percentage die, then slaughtering them in painful ways while they are conscious, and grinding up the bits that we don’t like for use in candy, make-up, and dog and cat food.

Though, apparently, giving animals deep soulful looks in a petting zoo is still okay.

The claim that the scientific community just a generation ago thought human infants were machines with no feelings is simply absurd. The idea that animals are just machines is an 18th century idea popularized by Descartes that was in steep decline by the end of the 19th century.

Murdock could be referring to the popularity of behaviorism in the 20th century, but behaviorism postulated that humans and animals are both feeling machines (and its a bit of a stretch to ascribe to all of science the views of behaviorists).

You’ll have to forgive me for not dwelling more on Murdock’s contentions about living machines — I’m off for a staring contest with my cat to resolve once and for all if it has a soul.


Vegetarianism and Peace. Trevor Murdock, January 24, 2005.

Canadian Researchers Isolate Stem Cells in Brain Tumors

Canadian scientists recently published the results of their research identifying stem cells in brain tumors that keep the tumor growing. The research was published in the Nov. 18 issue of Nature.

It was already known that breast cancer and leukemia use stem cells to quickly grow and regenerate when they are threatened with destruction, but the finding that brain tumors also utilize stem cells suggests that this is a common mechanism used by cancerous tumors.

Researchers first isolated stem cells from other cells in cancerous human tumors. They did this by extracting cells in the tumors that were producing a protein commonly found on the surface of other stem cells. They then injected 100 of these cells into mice.

Sixteen of the 19 mice injected with these cells developed cancerous brain tumors. This is the first time that researchers have demonstrated that such cells can indeed cause cancer itself.

According to Nature,

Moreover, the cancer stem cells grew into tumors that behaved similarly to those in the patients from which they came, resembling glioblastomas and medulloblastomas, for example. This suggests that mice tumors will be a good way to study the human disease.


Stem Cells Feed Brain Tumors. Kristen Philipkoski, Wired, November 17, 2004.

Stem cells home in on brain cancer. Jim Giles, Nature, October 25, 2004.

Matt Prescott Keeps On Lying about Holocaust On Your Plate

People for the Ethical Treatment of Animals is still touring the world with its “Holocaust On Your Plate” display. In September, the display started making its way through Canada.

In Montreal, Matt Prescott set up the show across the street from a Burger King, but he apparently was taken aback by complaints that the campaign says that meat eaters are the moral equivalent of Nazis. So he did what most PETA representatives do when confronted with embarrassing arguments — lie. Prescott told The Montreal Gazette,

[PETA is] not saying meat-eaters are the equivalent of Nazis. We’re saying anybody who eats meat is guilty of holding the same mindset that allowed the Holocaust to happen. We can take a stand against that ever time we sit down to eat by adopting a vegetarian diet.

PETA is not saying meat-eaters are Nazis? Ah, that explains why PETA features a web-ad on its site with pictures of concentration camp victims on one end and pictures of slaughtered pigs on the other, and in between text saying, “In relation to [animals] all people are Nazis.” Because, of course, PETA is not saying that meat-eaters are equivalent to Nazis.


Philllips Square exhibit a shocker. Andy Riga, The Montreal Gazette, September 9, 2004.

Should Americans Be Allowed to Import Drugs from Canada?

The whole reimportation of prescription drugs from Canada issues is a bit odd because it tends to reverse traditional political views. Democrats who complain about the horrors of outsourcing jobs and the evils of free trade suddenly find themselves on the side of free trade across the Canadian border. Republicans who are nominally the party of free trade suddenly find themselves talking like anti-globalization activists about the dangers of weak safety standards in countries where the drugs might be made (and, as Clark Venable notes, it’s misleading to claim that the reimported drugs are made in America or Canada).

I am a free trader, a fan of the pharmaceutical industry and an ardent supporter of reimportation. Clark Venable quotes from a New England Journal of Medicine article that purports to make the case against reimportation, but really offers up the main reason to support it,

The mass exportation of prescription medication to the United States threatens the preferential pricing set by the Patented Medicine Prices Review Board.2 Companies may also choose not to market medication in Canada in order to protect the larger and more lucrative U.S. market.3 At risk is nothing less than the ability of countries to set their own policy regarding pharmaceuticals. The availability of Canadian medication is not a viable long-term solution to the problems of drug costs in the United States and represents a substantial threat to the access and affordability of drugs in Canada.

Yes, absolutely — this is precisely what needs to happen to bring sanity back to prescription drug pricing.

The current situation is quite simple. Canada tells a pharmaceutical manufacturer that it will only buy a drug at say $2/pill. The manufacturer says fine, we’ll make that up by charging American consumers $4/pill. The end result is that Americans end up subsidizing Canada’s system of socialized medicine. They get all the benefits of the lower price, while Americans pay the price in higher prices and also to a certain extent a penalty that discourages innovative new products (since in order for a product to be truly profitable, a company has to be able to sustain high prices in the U.S. market, so there is a disincentive to develop products that might be profitable if there were a market system in other countries rather than only in the United States).

As the NEJM notes, allowing reimportation of drugs will go along way to busting up that system which is a very good thing for Americans. Canadians (and other countries for that matter) must know that they cannot be free riders on American consumers forever. If their governments are going to continue to demand below market prices from drug companies, they are going to have to face a tradeoff of important medications being withdrawn or not being made available at all.

It should also be pointed out that the U.S. government also artificially inflates the cost of drugs with requirements that companies sell drugs to Medicare at the lowest rate they are sold for in the United States. Hmmmm…so if a company offers a subgroup a discounted price, it has to offer the government that same discounted price. Guess how pharmaceutical companies decide to price drugs given those incentives.