Santa's Unfair Trade Practices
On Christmas Eve, Santa will visit approximately 160 million children. Traveling at nearly 6,214 miles an hour, he will cover 19.3 million square miles. Along the way, he has to stop, drop off each of his 20 tons of presents, then accelerate again. His aerodynamics could create massive heating, sonic booms, and 10 Gs of force.
He also might be accused of unfair trade practices.
Santa's workshop violates U.S. trade rules.
Most egregiously, he subsidizes all that he brings to the children in the United States. We could even call it a 100 percent subsidy. For much less, the U.S. has entered formal complaints with the WTO (World Trade Organization). During 2018, the World Trade Organization said U.S. aerospace companies were harmed by the subsidies given to Airbus by France, Germany, Spain, and the UK. It authorized the U.S. to respond with "countermeasures." Those countermeasures include a 25 percent tariff on wine imports with alcohol content that is equal to or less than 14 percent.
Furthermore, we have no evidence that the elves use U.S. made parts in the toys they make at the North Pole. However, the recent U.S. trade deal with Canada and Mexico (USMCA) indicates that tariff free items entering the U.S. have to have a large proportion of North American content. For example, 75 percent of a tariff free car made in Mexico will have to originate in North America.
We also could be concerned with what the elves are paid. The USMCA agreement has a high wage mandate targeting 40 to 45 percent of the parts in tariff free vehicles. At a $16 average, the high wage minimum is triple what a typical Mexican worker earns. I assume that elves are paid nothing?
Our Bottom Line: Comparative Advantage
I suspect though that David Ricardo (1772-1823), a very wise 19th century economic thinker, would have been delighted that Santa could engage in free trade. As the first person to articulate comparative advantage, Ricardo would have explained that Santa has the lowest opportunity cost when he produces toys. He employs cheap labor and does low cost manufacturing. As someone who has nothing else to do all year except make toys and other holiday gifts, there is no alternative production that he is sacrificing. With such a low opportunity cost, he has the comparative advantage making Christmas gifts for all of the children in the world.
Consequently, I suggest that we not worry about unfair trade practices.
My sources and more: I thank The Hill for giving me the unfair trade practices idea for this post. Then, this BBC More or Less podcast had the calculations for Santa's Christmas Eve travels. And finally, the NY Times had our USMCA facts.
Tags comparative advantage David Ricardo Mexico minimum wage NAFTA rules of origin Santa Claus subsidies unfair trade practices USMCA World Trade Organization (WTO)
Elaine Schwartz has spent her career sharing the interesting side of economics. At the Kent Place School in Summit, NJ, she has been honored through an Endowed Chair in Economics and the History Department chairmanship. At the same time, she developed curricula and wrote several books including Understanding Our Economy (originally published by Addison Wesley as Economics Our American Economy) and Econ 101 ½ (Avon Books/Harper Collins). Elaine has also written in the Encyclopedia of New Jersey (Rutgers University Press) and was a featured teacher in the Annenberg/CPB video project "The Economics Classroom." Beyond the classroom, she has presented Econ 101 ½ talks and led workshops for the Foundation for Teaching Economics, the National Council on Economic Education and for the Concord Coalition.
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