Why State Borders Are so Much Better Than National Borders

To many Americans, the mention of Florida conjures up images of orange juice. For others, it’s Disney theme parks, a place to escape harsh winters, or even a place to spend the rest of your life. All represent things Floridians export to other Americans.

Mutually Beneficial Trade

Popular thinking aside, there is nothing intrinsically beneficial to Floridians about exporting things like orange juice to other Americans. Exported orange juice represents juice not available to Floridians. However, the exported juice provides Floridians the wherewithal to buy say, apples, from other Americans—apples Floridians presumably value more than the forsaken orange juice.

The same can be said for other Americans. The apples they export to Floridians represent what they give up to acquire orange juice. Absent being able to acquire orange juice, there is nothing intrinsically beneficial to other Americans about exporting apples.

Florida as a separate country would not alter it’s natural advantages when it comes to oranges.

To what extent are these gains attributable to Florida being part of the United States? Remember that Spain ceded Florida to the United States in 1821. Florida became a state in 1845. What if Florida were a separate country a la countries in Central and South America? Would this change the economics outlined above?

Florida as a separate country would not alter Florida’s natural advantages when it comes to oranges, nor would it alter other Americans’ natural advantages when it comes to apples. The basis for mutually beneficial trade would be the same. However, it is easy to imagine that the amount of trade would fall, reducing the gains from trade.

Tariff Protection

For starters, Florida oranges bought by Americans would now be officially classified as imports. Hence, they would be eligible for US import tariffs. US citrus producers—located in California, Arizona, and Texas—could/would allege that Florida oranges were subjecting them to “ruinous competition.” Tariff protection, these producers would argue, would “level the playing field.” Americans’ imports of Florida oranges would decrease, as would their exports of apples.

The reason this cannot happen with Florida or another one of the 50 states is that interstate tariffs are unconstitutional. As a result, the United States is a large free-trade area, able to reap tremendous gains from specialization and exchange. When people try to explain Americans’ high living standards, this free-trade area proposition is often overlooked.

So does it make a difference whether US borders are state borders or national borders? You bet.

A second factor that would decrease trade between an independent Florida and the United States is the fact that the template for economic organization the Spanish bequeathed to Central and South America is hardly a recipe for economic dynamism. Uruguay, Paraguay, Bolivia, Ecuador, Peru, Argentina, Venezuela, Columbia, Mexico, Honduras, and Nicaragua all represent various degrees of economic basket cases. Is there any reason to expect that an independent Florida would be different? I think not. An independent Florida would still export oranges and import apples. Just fewer of them, along with lower gains from trade.

So does it make a difference whether US borders are state borders or national borders? You bet.