Capital intensive technology manufacturing
April 14th, 2009 | Published in Economics idea | 2 Comments
One of the reasons we need international trade is that some of the modern technology we rely on can only be produced by very expensive factories. For example, the factories that produce computer chips are very expensive because of the precision required and the low contaminant tolerance. A computer chip factory can cost billions of dollars. When a factory costs that much to build, it isn’t practical for each country to make the chips it needs.
While high technology isn’t always needed, computers and their brethren can be very useful. Technology often increases productivity. It can also be used to reduce pollution and waste.
While it might be appealing to return to a simpler time where we could meet our needs locally, there are some useful tools that we would have to give up to do so. I believe that we should do as much as we can to meet our needs locally. However, there will always be a need to trade for some things, such as computers.
April 14th, 2009 at 3:13 pm (#)
Why is it desirable to be able to meet your needs locally? The best reason I can come up with is that if there is some sort of cataclysm, it would be nice to have my own farm to live on. But other than that, where is the benefit?
The big argument for trade in my mind is comparative advantage. Both sides should get value out of trade, so everyone is better off.
The computer chip factory is a good example, but why are low-tech examples any different?
Eric
April 15th, 2009 at 2:12 pm (#)
Eric.
Good questions. I’m not against foreign trade. I believe that it is helpful in terms of both economies of scale and comparative advantage.
In this post, I am just musing about one reason why abandoning trade would be bad. Running a global economy is difficult because of the fragmented governance. There needs to be pretty darn good reasons to want to slog on with international trade. This is just one.