FACT & COMMENT
International trade is good.
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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