Thursday, January 13, 2011

Free Trade and Protectionism: Spontaneous Order Always Wins Out

Bunkerville has written a post entitled Obama Seeks to Lift Ban on Controversial Cross-Border Trucking Program. In this, he talks about the folly of free trade and how we need to keep these trucks out of the United States in order to protect domestic jobs. In a friendly dialogue, I would like to disagree with him and offer my own opinion about free trade.

The easiest response is that the "America First" mantra would set off a trade war. If we do not accept products from other countries, then what will other countries do in response? Simple, they'll close off their markets from American goods. So in the name of protecting jobs, you have destroyed jobs. But there is much more to the issue, I believe.

The next easiest issue would be competitiveness. Look, for example, at the American auto industry. For years it has been a source of complaint and ridicule. Imagine what would have happened if the Japanese and German automakers had not grown in market share in this country. Presumably, we would have the same poor quality and high price that American car companies had offered for the past few years. When Toyota and other companies began to grow, American car companies realized that they had to change. GM was too bogged down by union labor and so probably would have been better off going out of business, but Ford revamped their image, came out with stylish cars, and have really bounced back. Would this have happened without the Japanese putting pressure on Ford? It is highly doubtful. So the benefit to consumers is clear.

But what about the workers who, without protections, will see their jobs outsourced? There is always a cry for sympathy and brotherhood when we see jobs going to other countries. One of the oft used examples is how American manufacturing dominance is being lost to China and other growing countries. Well, I do not like doing this, but I have to say that it is just wrong.


What is really happening is that we are becoming much more efficient, so we do not need as many industrial jobs. The reason that industrial jobs are being lost is because we can produce more wealth per worker than we could before. Should we really bemoan the loss of high-intensity industrial jobs? I think not.

So what will these people do for jobs if we are losing all of these jobs to other countries? The simple answer lay in the fact that "production creates its own demand." Because other countries are producing more, that means they will be consuming more. A new job market then opens up for Americans. A loss of a job does not mean permanent unemployment.

America First is a short-sighted ideology. It makes American companies less competitive and holds us back from doing other jobs that increase our well-being. For instance, why make an exhaust pipe here if China can make an exhaust pipe and those workers instead do something else like increase our technological advancement (indirectly this is exactly what would happen). The best way to increase our future prosperity is to maximize our production right now. The only way to do that is to have people realize how much their labor is truly worth so that they will only produce what is most highly desired by consumers. The source of prosperity is production, not artificially inflated wages.


  1. I agree with you in theory. Having read much about previous efforts at isolation, I recall the downside. So lets think about what happens when we no longer need to produce/manufacture anything and our sources are curtailed. We no longer can build armaments. We no longer have an energy supply and we will freeze our sorry A** off in 45 days, give or take a couple. We have about a 6 week food supply..from source to store delivery.
    I could go on... but we are hanging by a thread, and it does't feel good. A good debate!

  2. As I said over at Bunkerville, the trucking issue has nothing to do with trade. It has everything to do with mna-hours of work. The agreement gives more man-hours of work to the Mexican truckers at the expense of man-hours of work for American truckers.

  3. For Jim -

    The invention of the automobile decreased the amount of work available to horse and buggy operators. Should we have banned the automobile so that these people could have kept their jobs (not trying to be sarcastic or insulting, just providing an analogy)?

    For Bunkerville -

    We still do produce things. This scenario would only hold true if we stopped learning how to produce and do things and had no skills. It simply isn't true. Are those countries that are taking our industrial labor buying things that Americans make? All the time. As long as we have something valuable to trade, there's no problem. We should be worried when other countries become more skilled and productive than we are. But even at that point, the solution would be to make ourselves more skilled, not keep out foreign products.

    It reminds me of mercantilism. The theory was that a country's industry could grow larger by keeping out foreign competitors. What actually ended up happening was that consumers were left with an inferior, more expensive product and there was less labor available to do the jobs that the citizens were more talented at. For instance, in America today, we would have more people screwing on light bulbs because they would be paid relatively more and less people making microchips because they would be paid relatively less.

  4. Sorry Tony, that is not the same thing. i stand by what I said.

  5. But how is it not the same thing? We are losing low productivity jobs. What do you think that the people who are laid off as a result are going to do instead?

  6. Come on, Tony. Losing a job to technological innovation is not the same as government taking it away from one and giving it to another.

  7. But we're not talking about government giving away one job and giving it to another. Losing your job to a cheaper priced competitor is a part of capitalism.

    If we overprice the jobs that don't take much skill, then what's the incentive to earn skills yourself?

  8. Capitalism is free competition where everyone plays by the same rules. This is not free competition. It occurs by government intervention. By your logic, we should open our boarders to the cheapest labor in the world and leave Americans with what? In this case the Mexican trucker takes the money earned in the US back to Mexico. Win/win for Mexico.
    I think on this one Tony we'll have to agree to disagree.

  9. It's a win for Mexico and a win for us. Mexico of course gets more jobs. We get cheaper products because transportation costs would go down. This means that Americans have more money to spend on other things, providing more jobs for Americans.

    We just have to remember that production creates its own demand. The loss of a job to cheaper labor necessarily opens up another job because that cheap labor will buy things as will other consumers because they have more disposable income. In the opposite situation, goods are more expensive. I see only a net negative for the protectionism scenario and a net positive for the free trade scenario. What am I missing?