AS the United States continues to impose tariffs on a broad spectrum of imported goods, Milton Friedman’s timeless lesson about the lead pencil is more relevant than ever.
In his influential television series Free to Choose, Friedman – recipient of the 1976 Nobel Prize in Economic Sciences – used the seemingly mundane pencil to demonstrate the extraordinary complexity and global interdependence that underpin free markets.
He explained that the wood used in a pencil might come from a tree harvested in the state of Washington, which requires a saw made of steel – steel that itself is derived from iron ore. The graphite might originate in South America while the eraser likely contains rubber from Malaya.
Remarkably, Friedman noted, rubber trees are not even native to that region; they were imported from South America with the help of British colonial interests.
Through this example, Friedman emphasised the intricate coordination required to produce even the simplest product – coordination made possible by the global market system, where countless individuals in different parts of the world contribute to production without ever knowing one another.
This, he argued, is the genius of free markets: their ability to foster peaceful and productive cooperation among strangers, ultimately benefiting consumers and societies through efficiency and innovation.
Friedman’s metaphor extends beyond economics to convey fundamental principles such as comparative advantage – first articulated by David Ricardo in the 19th century, which holds that countries gain by specialising in what they produce most efficiently and trading for the rest.
No single nation possesses all the resources, labour or infrastructure to produce complex goods independently. The pencil, or any modern product, like a smartphone, reflects this reality.
Today’s smartphones are produced through intricate global supply chains that span multiple continents: semiconductors from Taiwan or Malaysia, lithium batteries and rare earth elements from China, display panels from South Korea, software and chip design from the US and final assembly in Vietnam, India or China. These supply chains are highly sensitive to trade policies.
When tariffs are imposed, especially on intermediate goods, they increase costs, complicate planning and introduce uncertainty across production stages.
Supporters of tariffs often argue they protect domestic industries, reduce reliance on strategic competitors and promote national reindustrialisation.
However, mounting empirical evidence shows that tariffs function as a tax on consumers and downstream industries, distorting prices and undermining the comparative advantages that drive global economic efficiency.
In recent years, rising protectionism, exemplified by sweeping US tariffs under the banner of “economic liberation”, has triggered retaliatory measures, strained trade relationships and threatened the cooperative spirit upon which global commerce is built. This inward turn undermines not only economic efficiency but also geopolitical stability.
In an era defined by VUCA (volatility, uncertainty, complexity and ambiguity), Friedman’s pencil reminds us that the solution to global challenges – climate change, resource scarcity and technological disruption – lies not in isolation but in cooperation.
Trade, anchored in fairness and multilateral rules, remains one of the most effective tools for fostering prosperity, peace and resilience.
For small, open economies like Malaysia, which depend heavily on exports of electronics, palm oil, rubber gloves and machinery, the notion of decoupling from global supply chains is not only economically unfeasible but strategically unsound.
Attempting to replicate entire supply chains domestically would erode competitiveness, stifle innovation and threaten employment.
Ultimately, international trade must evolve to be more inclusive and sustainable but its foundational principle remains unchanged: mutual exchange is not a zero-sum game but a powerful engine for shared growth.
As Friedman’s pencil teaches us, the invisible hand of cooperation is what truly lifts all boats when the tide rises.
Assoc Prof Dr Puan Yatim is from the School of Business at Universiti Kebangsaan Malaysia. Comments: letters@thesundaily.com
