Free Trade... or Foul?

by Gene Callahan by Gene Callahan

I received a surprising number of e-mails supporting protectionism in response to my recent article, “Fair Trade… or Foul?” (Sean Corrigan seems to have had a similar experience. Are protectionists suddenly descending on One thing that made the number surprising was that the column in question didn’t really address the issue of free trade!

Nevertheless, the e-mails gave me some insight into the arguments commonly used by protectionists. I think it will be worthwhile to spend a little time addressing them, since they seem to be popular with some portion of’s audience.

The primary contention of my correspondents was that the U.S. is being impoverished by free trade. It should adopt protectionist policies to halt its economic decline. Free trade, they say, is taking away American jobs and driving down U.S. wages.

Let us imagine, for a moment, that they are correct in these assertions. (Ignoring, for instance, the fact that the U.S. is not practicing free trade today.) The first puzzle is why these forces should stop working at national borders? If the residents of the U.S. would be better off with more protectionism at work, why wouldn’t the residents of Montana be better off adopting protectionist policies to keep out goods from other states? After all, there are far fewer restrictions on trade between U.S. states than there are on foreign trade.

Indeed, why would the principle stop at state boundaries? Why wouldn’t each county, or each city, be better off under protectionism? Why not even move down to the level of the neighborhood or the family? Perhaps the road to riches is for humans to again live as bands of isolated hunter-gatherers.

In fact, I would suggest that the only reason protectionism is much more prevalent at the national level rather than more locally is that politicians have little need to appease the people in other countries hurt by these policies, while if they apply them locally they will have angry citizens to deal with.

A protectionist might protest that I’ve missed the point: “It’s not trade per se that is impoverishing us, it is trade with low-wage countries.” This argues not for protectionism between neighborhoods, but between economic classes. It seems it is foolish of Warren Buffett, when he needs a shoeshine, to trade with a fellow who makes only $15,000 a year. If he were only as wise as my correspondents, he would find other billionaires to do his shoes, cut his hair, and mow his lawn.

If this principle were true, again we must ask why it would not apply within a country just as much as between countries. Trade between New York and Mississippi has been relatively free for 200 years now, and yet it has not “driven” New York wages down to the level of Mississippi wages. Perhaps it is just a slower process than I had imagined!

Protectionists seem to have overlooked a very important point about wages: They are “high” or “low” to the extent they can buy “many” or “few” goods and services. If I was alone on a desert island, I could establish my own currency and “pay” myself a gazillion dollars a minute for any work I did. But this would not make me one iota better off, since there wouldn’t be a single good or service I could have at that wage that I could not have had if I had declared my wage to be five cents a minute. This is, of course, a contrived example, but the same principle applies to an economy encompassing millions of people: a wage is only as good as what it buys.

Since the whole point of protectionist policies is to restrict the supply of goods in a country, therefore driving up their prices, under protectionism any particular dollar wage will be worth less than it would with free trade. Consider a country, Ruritania, where the residents make only watches and wheat. The policy makers find that the country is importing many, many goods from abroad. In order to make the country “prosper,” the policy makers decide to ban imports. Now, instead of frivolously sending money to foreigners, thus denying their fellow countrymen higher salaries, everyone will have to spend their wages on domestic products. Domestic wages will soar! Regarded simply in terms of the amount of Ruritanian currency each worker receives wages might very well increase, but consider what the Ruritanians can buy with their higher wages: very expensive wheat and very expensive watches!

U.S. trade with China is a particularly vexing subject for many of my correspondents. They ask me, “Do you want the wages of the common American worker to sink to Chinese levels in order to enrich the financial elite?” They don’t seem to enquire into what, exactly, China is exporting to the U.S.

The answer, to a great extent, is “cheap consumer goods.” And who benefits the most from an increase in the amount of cheap consumer goods available in the U.S., if not the “common American worker”? Or do protectionists believe that Bill Gates is busy stockpiling millions of pairs of cheap Chinese-made sneakers and underwear?

The whole notion that the choice between free trade and protectionism divides neatly along class lines is nonsense. When tariffs on foreign steel were proposed recently, the CEOs of steel companies, very wealthy individuals, led the campaign to have them passed. According to Steve Chapman, American cotton growers receive an average of $50,000 a year in subsidies, while, cotton growers in Africa, who cannot sell their product here due to this protectionism, live on a few hundred dollars a year. The lobbying of millionaire sugar growers in Florida has raised the price Americans pay for sugar to roughly double the price on the world market. Meanwhile, it is the poorest Americans who suffer the most from American sugar policy, since they are least able to afford the higher price. To a billionaire, it matters very little if sugar doubles in price, since sugar comprises such a small portion of his total consumption. But the poor, who may spend a large slice of their income on food, are hit much harder by agricultural tariffs.

No promoter of free trade should deny that some people’s financial situation might be worsened, at least in the short run, by free trade. Furthermore, if a particular group can persuade the government to protect its industry, but no (or few) others, it may serve the financial interests of those in that industry very well. Protection for only the auto industry would probably make the owners of carmakers and automobile workers better off. But once they receive that privilege, why wouldn’t other industries lobby for the same sort of arrangement? We can subsidize workers and owners in a few industries at the expense of workers and owners in others, but it is nonsensical to try to subsidize all workers and owners.

I have sympathy for the plight of people whose interests have been hurt by foreign competition. If I had a friend in such a position, I would do what I could to help him. But when those so hurt contend that they should be able to employ the law to deny me the opportunity to freely trade with anyone I wish, my sympathy for them evaporates. At that point, they have become extortionists. If I could persuade the government to allow people to buy my book and no others, I probably could make more money from it. After all, why should I need to endure competition from low-wage foreigners like Homer, Dante, and Shakespeare?

Protectionists charge free traders with an immoral pursuit of profits at the expense of the well being of American workers. This suggests that one ought to be more concerned about the hardships faced by the workers in one’s own country than those in other places. I must admit that I am at a loss to pinpoint exactly which moral principle suggests this conclusion. As far I recall, Christ said, “Whatever you do to the least of my brethren, that you do unto me,” not “Whatever you do to the least of my brethren living within the same political boundaries as you, that you do unto me.” Buddha, I believe, taught his followers to have compassion for all sentient beings, not all sentient beings in one’s own country.

Nevertheless, if my correspondents’ principles require them to purchase more expensive American-made goods and abjure cheaper ones made overseas, I would not dream of threatening them with violence to change their minds. But if I attempt to peacefully trade with a foreigner without paying the tariff the protectionists demand, they are perfectly willing to use the “weapon of mass destruction” called “The State” and have me imprisoned for my choice.

I guess I still have a lot to learn about morality.

September 8, 2003

Gene Callahan/Stu Morgenstern Archives