Last month, retired Rep. John Linder wrote a clear-headed article about the benefits of trade. A week-and-a-half later, FedEx founder and CEO, Frederick W. Smith, gave a detailed explanation in The Wall Street Journal about “How Trade Made America Great.” The freer the flow of international trade, the higher the per capita income of the country tends to be.
Yes, there are economic losers, which I’ll address, but overall, trade leads to higher standards of living and is not a threat to America’s future.
The much-ballyhooed “trade deficit” is a misleading indicator. Whenever an American voluntarily purchases something that was produced in another country, it is because both buyer and seller perceive that they will gain from the trade. If an American gains value from a trade, where is the alleged economic loss (“deficit”)? If the economic deficit is zero for each individual purchase, then if you multiply millions of international transactions times zero, your economic deficit remains zero.
The so-called “trade deficit” – actually a “merchandise trade deficit” – is simply an accounting artifice. It means Americans buy more things made abroad than foreigners buy things made here in the United States. In other words, we Americans get more things to enhance our standard of living and foreigners get more dollars.
Before Adam Smith published his “Wealth of Nations” in 1776, mercantilist thinkers believed the superstition that the richest country was the one with the most gold and silver (i.e., money). Smith exploded that illusion with the more democratic, humane and rational statement that the wealthier country was the one in which the people had higher standards of living – that is, they were able to consume more of the economic goods that they wanted.
The merchandise trade deficit is a highly inaccurate and misleading statistic. It suffers from problematical measurement errors, such as counting the entire value of an economic good as being from the country from which the finished good was imported, even if most of the components of the finished good came from other countries.
Another problem with the merchandise trade deficit is that it gives an incomplete picture of economic relations between countries. Most of our economic output consists of services rather than goods, and theUS typically exports more services than it imports. Similarly, a merchandise trade deficit is mirrored by acapital surplus with many of the dollars constituting that surplus reappearing in the US as capital investments in productive, job-creating enterprises.
This is not to say that trade is painless. Some Americans lose their jobs due to international competition – just as some lose jobs from domestic competition. All that competition leads to more choices, better values, greater affordability and higher standards of living for all of us as consumers. But there is collateral damage: displaced American workers.
It is a mistake, though, to think that trade involves making a choice between the interests of American consumers and American workers. Protectionist measures designed to preserve certain American jobs do indeed hurt consumers by limiting their choices and essentially forcing them to pay more for goods produced by the protected domestic parties, leaving consumers less able to afford additional goods This is true.
But what is less understood is that protectionist measures to protect some domestic jobs come at the expense of other Americans losing their jobs. The most famous example of that are the temporary protections for American steel imposed under Presidents Ronald Reagan and George W. Bush. In each case, the number of domestic jobs in businesses that use steel as an input greatly exceeded the number of jobs that undeniably were saved in the steel-producing companies.
“OK, so Hendrickson is one of those economists who stubbornly believes in the principle of free trade, right?” you might say. Guilty! I believe that government has no business (at least, in peacetime) denying American citizens the freedom to buy legal merchandise from the vendor of their choice. Further, I believe that 19th-century French economist Frederic Bastiat was correct when he stated that protectionism is the first step toward socialism, because the government, not consumers, chooses economic winners and losers.
So, being a free trader, it follows that I favor passage of the Trans-Pacific Partnership by Congress, right? Wrong! I most emphatically do not.
Here’s why: Linder wrote, “Trade agreements are designed to do one thing and one thing only. Reduce barriers to trade.” TPP seeks to do far more than to reduce trade barriers; consequently, it is not truly a trade agreement. Look at its name. It doesn’t refer to trade at all, but instead a “partnership.” This partnership is more political than economic. It is more about globalism than globalization.
TPP is a plan by elitists to create a new undemocratic, unaccountable international commission that, like the European Commission, would erode national sovereignty. These ambitious globalists aren’t interested in growth-enhancing economic globalization (i.e., reduced trade barriers) as much as they are in having power to dictate what forms of energy we may use, to impose President Obama’s climate change on an unwilling American populace, to force poorer countries to adopt anti-pollution measures that are inappropriate and unfair to countries on the wrong side of the Kuznets curve — and other such economically damaging mischief.
The US would benefit from increased trade. We would not benefit from creating yet another unaccountable multilateral institution to join the UN, IMF, OECD, et al. in wielding powers that would supersede our Constitution and deny Americans the blessings of republican government.
If TPP ever comes up for a vote, Congress should emphatically reject it.
This article appeared first in TheBlaze.com.
The Moral Liberal Contributing Editor, Mark Hendrickson, is Adjunct Professor of Economics at Grove City College and Fellow for Economic and Social Policy at The Center for Vision & Values. He is also a contributing editor of The St. Croix Review, sits on the Council of Scholars of the Commonwealth Foundation, and is a Featured Contributor at TheBlaze.com.
Mr. Hendrickson’s most recent books include: Problems with Picketty: Flaws and Fallacies in Capital in the 21st Century (2015), Famous But Nameless: Inspiration and Lessons from the Bible’s Anonymous Characters (2011); and God and Man on Wall Street: The Conscience of Capitalism (with Craig Columbus, 2012).