Twelve Principles of International Trade: Part 3

In 1883, the American economist and sociologist William Graham Sumner described protectionism as deserving “only contempt and scorn, satire and ridicule. It is such an arrant piece of economic quackery, and it masquerades under such an affectation of learning and philosophy, that it ought to be treated as other quackeries are treated.”

His description was correct then and it remains correct now. The notion that people will be enriched if their government artificially impedes their access to goods and services is as detached from reality as is the belief that the future can be revealed through astrology. Each notion is equally absurd. And so protectionists merit no more intellectual respect than is owed to astrologers. Nevertheless, like astrology, protectionism has many true believers.

Exploring for the source of such wackadoodle beliefs is important. But such exploration isn’t my task here. My task, instead, is to continue the project of laying out twelve foundational principles of international trade. Below are principles seven, eight, and nine.

  1. The people of the home country benefit from their government following a policy of free trade regardless of the policies pursued by foreign governments.

Some protectionists concede that a policy of free trade at home can be beneficial to citizens of the home country. But, these protectionists insist, free trade is advisable only if a policy of free trade is followed also by other governments. If the government of, say, Chile obstructs its citizens’ freedom to trade with Americans, we in America – or so protectionists assert – will be economically damaged if our government doesn’t likewise obstruct our freedom to trade with Chileans.

An entire book could be written on the salvo of sophistries that incite the belief that free trade is beneficial only if all trading partners follow a policy of free trade. But getting a clear picture of the core flaw in this belief is easy: Ask yourself if you are harmed by your government failing to obstruct your freedom to purchase goods or services from merchants who aren’t your employer. For example, if you don’t work for Target, ask if you’re harmed by your government leaving you free to shop at Target.

If you answer ‘no,’ then you grasp, if only intuitively, the reason why you and your fellow citizens are not harmed if your government leaves you free to trade with foreigners whose governments prevent them from trading freely with you. Your gain from purchasing whatever products are offered for sale by Target depends in no way on your selling anything to Target.

This reality remains true even if you applied for a job at Target – that is, even if you offered to export from your household to Target some of your labor services – and were rejected. While you might indeed have been made better off had Target chosen to hire you, you would be made worse off still if your neighbor took it upon himself to obstruct your ability to shop at Target. This fact would not be altered if your neighbor explained sincerely that his wish is to retaliate on your behalf against Target for its refusal to purchase your labor services.

  1. Trade is a technique for individuals to produce, for their own consumption, goods and services at the lowest possible cost.

Like most people, I personally launder my jeans and bed linens. Why do I do so, given that I could instead hire someone to perform this task for me? The answer is that the value to me of the time and other resources that I spend performing this task for myself is less than is the value to me of the time and other resources that I’d have to spend to earn enough income to pay someone to perform this task for me.

Put differently, my lowest-cost technique for laundering my jeans and bed linens is my doing this task myself – that is, my doing this task directly.

Yet I don’t launder my own button-down shirts. To do this task for me I hire Regency Cleaners. The reason is that the value to me of the time that I would have to spend personally ironing these shirts after they are laundered is greater than is the value to me of the time and other resources that I must spend to earn enough income to hire Regency Cleaners to launder and iron these shirts for me.

Put differently, my lowest-cost technique for laundering my shirts is for me to teach economics. Some of the income that I earn from teaching is then used to pay Regency Cleaners to launder my shirts.

The same logic of production applies to all trade, foreign no less than domestic.

The economist Steven Landsburg, inspired by David Friedman, points out that Americans produce a lot of cars on Iowa cornfields. Because corn can be grown comparatively inexpensively in parts of the American Midwest, we Americans produce many of our cars not directly but, instead, in a roundabout way. We produce cars by growing corn that we then feed into a marvelous machine that’s engineered to transform corn into cars. Corn in, cars out. Amaizing!

Are you skeptical that such a machine really exists? Cast away your skepticism. This machine is real. Its name is “cargo ship.”

And if you think me here to be playing clever word tricks, think again. Behold all that you consume each day of your life and ask how many of these things did you – could you?! – make yourself directly. The answer is none. Yet you have these things in abundance. The fact is that you produce these goods and services for yourself in a roundabout way by specializing at producing whatever you are best at producing. You then feed your resulting income into the market – we call this process “spending” – which then transforms your income into your food, clothing, shelter, smartphone, and all the other wonders that are so commonplace that you take them for granted.

  1. A policy of free trade ensures that people in the home country receive in return for their work effort the greatest possible amount of satisfaction.

This ninth point is especially straightforward, yet surprisingly easy to miss. Because each person seeks to spend his or her income in ways that yield, to that person, the greatest amount of satisfaction, each person will buy only those particular goods and services that he or she believes contributes best to that end. We Americans do not buy Japanese-made cars or French wines because we wish to help the Japanese or the French. Those of us who buy these things do so because we wish to help ourselves. We believe that these particular foreign-made items are the best objects upon which we can spend a portion of our incomes.

And so if the U.S. government obstructs our ability to buy foreign-made outputs, it necessarily prevents us from getting the most satisfaction possible out of our incomes. To state the matter more plainly, protectionism – by reducing buyers’ options – makes the bulk of people in the home country poorer than they would otherwise be.

Protectionists miss this reality because they see only the relatively few domestic producers who, protected from competition, reap unjustified gains from protectionist policies. But testimony to the truth that protectionist policies make the people of the country as a whole poorer is found in the fact that governments, to reduce their citizens’ purchases of foreign-supplied offerings, must use coercion. People generally do not have to be coerced to act in their best interest, but to act otherwise they must be coerced.

* This article was originally published here

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