Rebirth of Reason


Trade Barriers Are Immoral and Destructive of Economic Well-Being
by Edward W. Younkins

At root, the issue of tariffs and other trade barriers is a moral concern. To place such restrictions on the exchange of property is an infringement on the natural right to own and exchange property. Protectionism threatens the consumers’ rights to choose from among goods and services. Protectionism is the policy of using coercion to restrict imports of foreign goods.

To argue for tariffs and other trade restrictions is the same as arguing against technological change and human progress. Trade barriers decrease the advantages gained through the international division of labor. The argument for protectionism is the argument for higher prices, lower quality goods, economic stagnation, and coercive monopoly.

Protectionists maintain that permitting consumers to purchase foreign made products causes unemployment at home. We are told that jobs are lost when we are invaded by cheap foreign goods. Protectionists argue that tariffs and quotas keep domestic wages from being reduced to the wage levels in countries from which we import. When firms within certain industries call for protection to allegedly protect consumers from poor quality products and to ensure their employees’ jobs, their real goal is to gain security through the removal of competition.

The real effects of protectionism are to reduce consumer choice, to raise the price of protected foreign products and domestic goods, to misallocate resources, and to lower worldwide production. Protectionists’ policies may “save” some jobs in a specific industry, but only at the expense of the overall welfare of the country. Tariffs promote the production of items in which a nation is inefficient and deter other production lines in which the country has a comparative advantage. By repealing tariffs, things that could be produced more efficiently in one country would be made there and items that could be purchased less expensively abroad would be imported.

Protectionism temporarily helps some producers, but it cannot do this without harming others. Who is hurt by tariffs? First there are those who buy a product upon which the tariff has been levied. Consumers of the tariffed foreign good and consumers who buy an American-made product at a high price that is protected by the tariff both bear the cost of the tariff. Both foreign and domestic producers can raise their prices as the result of the tariff. Purchasers would have less wealth to spend elsewhere. Further, there are the nonconsumers who would have entered the market if the lower price had been in effect. Also injured are domestic firms that now sell fewer goods because Americans have to spend more to purchase the tariffed products. In addition, American companies would necessarily export fewer goods because foreigners have made fewer dollars in America to pay for American exports. Trade restrictions on imports are also restrictions on exports. When we purchase foreign products, we actually create American jobs as dollars come back to the United States as payments for American-made goods, as investments in America that beget domestic job opportunities, or to pay off debt burdens.

Also harmed by a tariff is the foreign importer who earns fewer profits. Oftentimes, the consequence is retaliatory tariffs imposed by foreign governments on our products going abroad.

If a foreign country imposes a tariff on our products, our best response is not to retaliate at all. In fact, we should drop all tariffs and increase imports of the products of the offending nation. Foreigners in that country would then have a lot of paper dollars that they could use to purchase our products. We would have real foreign-made consumer goods in our possession, but would only be giving up paper currency. Imports are our gain from trade—the more goods, the better. When a country chooses not to retaliate, it provides its citizens with the benefits of free choice. Any country would benefit from eliminating tariffs and import quotas, even if other nations do not reciprocate. A country should not misallocate its resources and give up the benefits of specialization just because another nation does that to its inhabitants.

Certainly, if a tariff is removed, some workers in the protected industry may lose their jobs and some or all of the firms in the protected industry may be forced to close by the foreign competition. Workers will have to look for employment elsewhere. However, other job opportunities will be made available because the money that consumers previously had to pay for tariffs could be used to buy or produce new products or services or more of already existing products and services. Employment is created in other sectors because free trade permits resources to flow to areas that consumers consider being of highest value to them.

Protectionism benefits a relatively small group of special interests. There would be more people employed in protected activities, but at the expense of fewer people employed elsewhere in the economy. For example, trade barriers in the steel industry may save jobs in that industry for a short time period, but at the cost of destroying even more jobs elsewhere. American automakers would pay more for steel. This would lead to higher prices for American cars, thus reducing sales and ultimately causing layoffs of employees. Higher steel prices raise the costs of building cars in Detroit and promote the American sales of Japanese automakers whose final products embody the tariffed material, steel.

Contrary to protectionists’ claims, cheap foreign labor does not constitute an unfair advantage. As long as the productivity of American workers is greater, they are not at a disadvantage. The reason that labor is less expensive in some countries is because their workers have lower productivity. High wages are found in nations in which workers’ productivity is high and low wages are found in nations where productivity is low. American wages are higher because the marginal productivity of U.S. workers is higher. U.S. workers have greater productivity primarily because of the capital equipment with which they work. In terms of labor cost per unit of production, the average American worker is the lowest paid worker in the world. Due to the use of tools and equipment, his productivity-to-wages ratio is far greater than the productivity-to-wages ratio of workers in other countries. Because of the plentitude of capital equipment, U.S. workers relatively provide the least expensive labor in the world.

What dictates a country’s comparative advantage in international trade is the relative total amount of resources used to produce a product, not solely the labor utilized. Low-wage nations import American goods because the United States has a comparative advantage in producing some goods, regardless of our seemingly higher wages. Whereas one country may have a comparative advantage in one product area due to its lower labor cost, another country may have a comparative advantage in another product area because of its low capital costs and high labor productivity. Whatever the particular scenario, low-wage countries must ultimately do something with the dollars they gain from the sales they make to Americans.

A tariff levied against “cheap labor” products would economically hold back foreign workers and keep domestic consumers from purchasing less-expensive products. Such a tariff would also maintain American workers in industries where they have no comparative advantage and keep them out of areas in which they would be most productively employed. Free trade shifts jobs from high relative cost sectors that cannot compete to low relative cost sectors that can compete. The case for free trade is the case for lower prices, higher-quality goods, economic growth, and competition.

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