Competitive masochism

Excerpted from Free to Choose, by Milton and Rose Friedman (Houghton Mifflin Harcourt, 1979).

Another fallacy seldom contradicted is that exports are good and imports bad. The truth is very different. We cannot eat, wear, or enjoy the goods we send abroad. We eat bananas from Central America, wear Italian shoes, drive German automobiles, and enjoy programs we see on our Japanese TV sets. Our gain from foreign trade is what we import. Exports are the price we pay to get imports. As Adam Smith saw so clearly, the citizens of a nation benefit from getting as large a volume of imports as possible in return for its exports, or equivalently, from exporting as little as possible to pay for its imports.

The misleading terminology we use reflects these erroneous ideas. “Protection” really means exploit- ing the consumer. A “favourable balance of trade” really means exporting more than we import, sending abroad goods of greater total value that the goods we get from abroad…

The argument in favour of tariffs that has the greatest emotional appeal to the public at large is the alleged need to protect the high standard of living of American workers from the “unfair” competition of workers in Japan or Korea or Hong Kong who are willing to work for a much lower wage… It is simply not true that high- wage American workers are, as a group, threatened by “unfair” competition f r om l ow- wage foreign workers. Of course, particular workers may be harmed if a new or improved product is developed abroad or if foreign producers become able to produce such products more cheaply. But that is no different from the effect on a particular group of workers of other Amer- ican firms developing new or improved products or discovering how to produce at lower costs. That is simply market competition in practice, the major source of the high standard of life of the American worker…

(Another) argument, one that was made by Alexander Hamilton and continues to be repeated down to the present, is that free trade would be fine if all other countries practiced free trade but that as long as they do not, the United States cannot afford to. This argument has no validity whatsoever, either in principle or in practice. Other countries that impose restrictions on international trade do hurt us. But they also hurt themselves. If we impose restrictions in turn, we simply add to the harm to ourselves and also harm them as well. Competition in masochism and sadism is hardly a prescription for sensible international eco- nomic policy…

We are a great nation, the leader of the free world. It ill behooves us to require Hong Kong and Taiwan to impose export quotas on t extiles to “protect” our textile industry at the expense of U. S. consumers and of Chinese workers … We speak glowingly of the virtues of free trade, while we use our political and economic power to induce Japan to restrict exports of steel and TV sets. We should move unilaterally to free trade, not instantaneously, but over a period of, say, five years, at a pace announced in advance.

Few measures that we could take would to more to promote the cause of freedom at home and abroad than complete free trade … We could say to the rest of the world: we believe in freedom and intend to practice it. We cannot force you to be free. But we can offer full co-operation on equal terms to all. Our market is open to you without tariffs or restrictions. Sell here what you can and wish to. Buy whatever you can and wish to. In that way co- operation among individuals can be worldwide and free.