DALLAS FED—FREE TRADE IS A
FRIEND TO CONSUMERS

DALLAS, June 4 - The key to America's high living standards is specialization and trade, according to the Federal Reserve Bank of Dallas' 2002 annual report essay.

In "The Fruits of Free Trade," Senior Vice President and Chief Economist W. Michael Cox and co-author Richard Alm write that consumers benefit from trade because of the competition it brings. Protection weakens us. The discipline of free trade causes us to specialize and produce efficiently. The secret to wealth is Do what you do best and trade for the rest.

"If we open markets, specialization and trade will work their magic for American consumers, just as they have for most of our history," the authors write.

Research comparing nations' economic freedom with their economic performance finds a positive correlation. Likewise, citizens of economically freer U.S. states earn more than those in other states.

The authors caution against both internal and external trade barriers. Tariffs, import quotas, antidumping laws, domestic content requirements and more cost consumers billions annually while making producers less competitive on world markets. Restrictions against interstate Web commerce in mortgages, autos, real estate brokerage, contact lenses and more threaten to rob the consumer of the new economy's bounty. In the battle of producers versus consumers, "producers want scarcity and high prices while consumers want abundance and low prices." A lack of vigilance against protectionists will harm consumers.

The 2002 annual report essay can be found on the Dallas Fed web site, http://www.dallasfed.org/fed/annual/2002/index.html.

Media Contact: Rachel Roberts
Phone: (214) 922-5253
E-mail: rachel.roberts@dal.frb.org

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