In­ter­na­tional Trade Is Good

Forbes Middle East - - CONTENTS - STEVE FORBES

IN­TER­NA­TIONAL TRADE is in bad odor these days, be­ing blamed for mas­sive job losses and drain­ing wealth from the U.S. The rap is wrong: Trade cre­ates far more re­sources and jobs than it de­stroys.

Free mar­kets are al­ways chang­ing, with busi­nesses open­ing, clos­ing, grow­ing or shrink­ing. New tech­nolo­gies up­end ex­ist­ing ways of do­ing things. The “churn” in the la­bor mar­ket is enor­mous, with lit­er­ally mil­lions of jobs in a typ­i­cal year be­ing ex­tin­guished and mil­lions more be­ing cre­ated. The rail­road in­dus­try, for ex­am­ple, was one of the U.S.' largest em­ploy­ers af­ter WWII, with more than 1.4 mil­lion work­ers. To­day the to­tal is around 170,000. In the late 1940s there were 350,000 tele­phone oper­a­tors. Au­to­matic-switch­ing equip­ment did in those jobs. Ditto the once ubiq­ui­tous of­fice typ­ing pool. Yet, at the same time, the num­ber of jobs cre­ated bur­geoned and wages rose.

But for very un­der­stand­able emo­tional rea­sons, when com­pa­nies shut down or down­size fa­cil­i­ties here and set up sim­i­lar ones in a for­eign coun­try, the po­lit­i­cal fall­out can be in­tense. “Bene­dict Arnolds” snarled the Demo­cratic pres­i­den­tial can­di­date, John Kerry, in 2004. The U.S. tex­tile in­dus­try em­ployed hun­dreds of thou­sands of peo­ple in the early 1900s, pri­mar­ily in New Eng­land. Then those jobs moved to south­ern states. The bit­ter­ness in the ar­eas ex­pe­ri­enc­ing plant clos­ings was real, but there were no calls to pun­ish the com­pa­nies that moved, as they were still within our na­tion's bor­ders. How­ever, af­ter WWII, when those jobs be­gan mi­grat­ing overseas, pri­mar­ily to Asia, the is­sue of tex­tile im­ports to the U.S. be­came a heated trade is­sue.

To smooth po­lit­i­cal wa­ters, “trade-ad­just­ment” pro­grams were en­acted for “dis­placed work­ers,” oc­ca­sional im­port quo­tas were slapped on po­lit­i­cally sen­si­tive prod­ucts, and every once in awhile, a tem­po­rary tar­iff was im­posed, par­tic­u­larly on items deemed to have been “dumped”—that is, sold here at prices be­low the cost of mak­ing them. The trend to­ward freer trade, though, was dom­i­nant.

Sup­ply chains be­came more so­phis­ti­cated, es­pe­cially with the cre­ation of con­tainer ships, which dras­ti­cally re­duced ship­ping costs. Be­tween 1985 and 2005, global trade quadru­pled. With­out trade, hand­held de­vices, equal in ca­pa­bil­ity to the su­per­com­put­ers of a gen­er­a­tion ago, would not be pos­si­ble and cer­tainly not at to­day's re­mark­ably low prices.

What made trade the tar­get it is to­day is the eco­nomic stag­na­tion that fol­lowed the 2008 cri­sis. But that slow­down wasn't the re­sult of trade but of bad gov­ern­ment poli­cies re­gard­ing money, taxes and reg­u­la­tions. Just look at how much bet­ter the U.S. did when taxes were cut in late 2017 and suf­fo­cat­ing reg­u­la­tions be­gan to be peeled back.

The only thing hold­ing us back now: the un­cer­tainty sur­round­ing cur­rent trade dis­putes.

Well-Meant But Mis­placed Parochial Pro­tec­tion­ism

BACK IN 1926 Gov­er­nor Ralph Owen Brew­ster of Maine fan­cied that a “Buy Maine Prod­ucts” cam­paign would in­vig­o­rate his state's trou­bled econ­omy—and this was be­fore the Great De­pres­sion. Hence this brochure, pub­lished by the state. (A line runs at the bot­tom of each page, de­not­ing from which Maine mill that par­tic­u­lar page's pa­per came.) Brew­ster and his col­leagues ar­gued that mak­ing an ef­fort to buy lo­cally made prod­ucts was not parochial or pro­tec­tion­ist but would save their con­stituents money be­cause of re­duced dis­tri­bu­tion and trans­porta­tion costs—as if con­sumers couldn't do their own com­par­i­son shop­ping. The book­let lists lit­er­ally hun­dreds of lo­cal busi­nesses, rang­ing from mak­ers of bar­rels, bob­bins, shoes, box shooks, saws and sleighs to man­u­fac­tur­ers of “pro­pri­etary medicines.”

The ef­fort helped gain no­to­ri­ety for Brew­ster, who later be­came a U.S. sen­a­tor. But, of course, the cam­paign did noth­ing to stim­u­late Maine's econ­omy, though it did no harm, ei­ther, be­cause the Con­sti­tu­tion pro­hibits the states from im­pos­ing tar­iffs and other re­stric­tions on items of in­ter­state com­merce.

Sadly, the na­tional gov­ern­ment went pro­tec­tion­ist, big­time, four years later by en­act­ing the dev­as­tat­ing SmootHaw­ley Tar­iff Act, which played a crit­i­cal role in de­stroy­ing the stock mar­ket and bring­ing about the Great De­pres­sion. Her­bert Hoover's pres­i­dency never re­cov­ered.

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