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The Bicycle of Trade

Updated: Jun 18, 2020

I came across the Bicycle Theory while reading an interview of Noam Chomsky, an American linguist, philosopher, cognitive scientist, historian, social critic, and political activist.

When asked about his amazing stamina and energy levels, he quoted the bicycle theory.

That as long as you keep going, you don’t fall! And when a 91-year-old person says so, you tend to believe it.

So today, on World Bicycle Day we’ll talk about the bicycle theory and world trade.

How is the experience of riding a bike? Basically, when you start cycling, you swivel a little and there can be problems balancing but once you regain your balance, you just keep going. But remember, if you stop, you fall.

It was Fred Bergsten of Peterson Institute who first compared trade liberalization with riding a bicycle. So most countries face some problems when liberalizing initially but slowly they regain control and then all they have to do is keep going.

Some critics of this theory say that stopping won’t lead to falling just as a bicycle rider uses the correct technique and doesn’t fall. But we must remember that bicycle riders have had experience in stopping the bike. Riders of the bicycle of trade, don’t.

To check whether this story holds true, we googled up failed socialist countries (Usually have higher trade restrictions) and there were tons.

Failed capitalist (Encourage free markets) countries? None.

Mind you, this does not make capitalism the better model out there, all we are saying that it becomes very difficult to turn back to restricted market practices once we are already on the path of liberalization.

People even stated the example of countries like Ethiopia, Haiti, Liberia, Afghanistan, the DRC, Guatemala, Honduras, Syria and Iraq to oppose this theory. But again these countries protested against western values, not free trade per se.

To understand the story better let us take an example. And what would be a better example than bikes itself? The National Bicycle Dealers Association says that about 99 per cent of bicycles sold in the United States in 2013 were imported, mostly from China and Taiwan. While there are still dozens of very small, specialized bike makers in the United States, total domestic production in 2013 was about 56,000 bikes, compared with 16.2 million imports.

Can the US go back? The trade war showed that if it tries to do so, it’ll face a harsh blow on its economy and obviously wrath from the public who’d have to pay increased prices for the made in USA stamp.

The world is so heavily interconnected with advances in one country affecting all others, expecting that the bicycle of trade will stop for any single country is too far-fetched. The economic cost that this one country would face would be much higher than the advantages of reduced imports.

Hence we conclude that this bicycle isn’t stopping anytime soon but some riders may try to slow it down now and then (Read: The US increasing import duties).

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