What JD Vance Doesn’t Understand About Free Trade
One underappreciated benefit of international competition is that it helps put less efficient domestic producers out of business.
Signs of an efficient economy.
Photographer: Jeenah Moon/Bloomberg
Efficiency, economically speaking, generally refers to improvements: higher production, superior service, faster innovation. But there is another definition that receives less attention: An efficient economy is also one that is better at putting less competent firms out of business.
The differences between the most and least productive companies can be startlingly high. By one estimate, in the US alone the most productive firms in a sector can be more than two to four times more cost-effective than the least productive ones. Given the size of those discrepancies, any expansion of trade or innovation that makes it possible to replace less efficient producers could help a sector economize a significant part of its production costs.