If you are sympathetic to arguments about trade deficits and about protecting American workers from foreign competition, then you really need to read and think about When Our Trade Isn't Free, Neither Is Our Work. Here's a little excerpt:
When trade is considered by economists and commentators, too often the discussion centers on countries. This evolves from the misbegotten notion that countries, rather than individuals, trade.
Thanks to a facile approach to what is a very basic concept, we’re as a result bombarded with strange notions of trade “surpluses” and “deficits” as though free exchange could be anything but a positive. Happily, as former Fed Chairman Alan Greenspan has reminded us, for “the world as a whole, of course, exports must equal imports, and the world consolidated current account balance is always zero."
Greenspan’s underlying point is that the trade that so many discuss in terms of countrywide imports and exports is really about individuals freely exchanging their surplus for that produced by others. In that case, all trade by definition balances.
And with the individual in mind, we can see clearly the faulty premise of protectionism. For an individual to act in ways protectionist would be for that person to live needlessly a life of deprivation. If this is doubted, imagine the living standards to which we would reduce ourselves if as individuals we relied solely on ourselves for food, clothing and healthcare, to list just a few of our wants. Assuming a long life, it would surely be one of immense poverty.
All of this is important in light of the almost monolithic move away from free trade among the G20 nations whose leaders recently gathered in London. Notably, officials of those same countries met in Washington last September, and while all promised to eschew protectionism, a new report from the World Bank reveals that in the aftermath of the September gathering, 17 of the 20 (including the United States) countries adopted no less than 47 protectionist measures.
The United States turns inward. Sadly, the numbers cited by the World Bank don’t even begin to describe what has actually occurred. If the U.S. is considered alone, our leaders have had us on a protectionist tilt of impressive proportions since last fall.
. . . . As part of the Obama administration’s stimulus package, a “Buy American” provision was inserted that would require companies receiving money for infrastructure projects to purchase most materials from U.S.-based firms. Not long after, U.S. trade officials, in a blatant violation of Nafta, re-imposed restrictions on the entrance into the United States of long-haul Mexican trucks seeking to deliver goods to American customers. . . . .
Implications of our inward turn. To a certain degree, therefore, American politicians are seeking to put up barriers to the natural flow of goods. What are the implications? At its core, protectionism is the process whereby producers who are no longer meeting customer needs are foisted on those same consumers despite their desire to transact with someone else.
Restricting free trade always makes people poorer. What is a trade imbalance, anyway? When you go to work, you create a mini-trade imbalance because you trade lots of your time and services for money. How lopsided is that? Your employer gives you thousands of dollars, but you give the company not a single dollar to offset all the dollars it gives you. And after all the work you do for the company, the company does no work for you whatsoever. If you really want to avoid a trade imbalance, you have to pay the company back every dollar you earn, and the company has to provide you with 40 hours a week of "free" services. That would be "balanced," but would it be helpful to anybody?
As long as the exchanges of money for goods and services remain free and voluntary, both sides to every transaction, whether domestic or international, end up better off than they did before each transaction. If both sides weren't better off after the transaction, they would not bother to make the exchange.
The minute government starts restricting free trade, by definition it begins to destroy wealth creation for both businesses and individuals. That is why trade protectionism inevitably leads to reduced opportunities and reduced wealth. In short, it makes for a sad little world.
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