WEBVTT

NOTE 23. The Importer

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Chapter 23. The Importer.

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The International Ladies' Garment Workers Union, ILGWU, has recently launched an unusual, extensive and costly advertising campaign.

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For racist, jingoistic appeal, it is unparalleled.

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The theme of the campaign is that foreigners, dishonest and undeserving, are taking jobs away from Americans, honest, upstanding and forthright.

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Perhaps the most famous ad in the series is the one which depicts an American flag above the caption, Made in Japan.

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Another presents a picture of a baseball glove, with the caption, The Great Un-American Game.

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The accompanying copy explains that baseball gloves and American flags are imported.

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The raison d'etre we are told for these scathing attacks on imports is that they create unemployment

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in America.

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And on a superficial level, the argument seems plausible.

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After all, every American flag or baseball glove that could have been produced domestically

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but was instead imported, represents work that could have been produced by Americans.

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Certainly this means less employment for American workers than would otherwise be the case.

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If the argument was limited to this aspect, the ILGWU's case for the restriction, if

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not prohibition, of imports would be well made.

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1. The argument, however, is fallacious, and the consequences to which it logically leads are clearly unsound.

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The premise which justifies protectionism on the national level also justifies it on the state level.

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We shall ignore the political impossibility, unconstitutionality, of one state setting up tariffs between it and other states.

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This is, after all, irrelevant to the economic argument of the anti-free trade ILGWU.

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Theoretically, any one state could justify its policy in exactly the same way that a nation can.

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For example, the state of Montana could bar imports from other states

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on the grounds that they represent labor which a Montanan could have been given, but was not.

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A Buy Montana program would then be in order. It would be just as illogical and unsound as the ILGWU's Buy American campaign.

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The argument, however, does not end at the state level. It can, with equal justification, be applied to cities.

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Consider the importation of a baseball glove into the city of Billings, Montana.

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The production of this item could have created employment for an inhabitant of Billings,

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but it did not.

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Rather, it created jobs, say, for the citizens of Roundup, Montana, where it was manufactured.

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The city fathers of Billings could take the ILGWU position and patriotically declare a

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moratorium on trade between the citizens of their city and the foreign economic aggressors

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in Roundup.

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This tariff, like those of the larger political subdivisions, would be designed to save the

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jobs of the citizens.

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But there is no logical reason to halt the process at the city level.

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The ILGWU thesis can be logically extended to neighborhoods in billings, or to streets

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within neighborhoods.

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Buy Elm Street, or stop exporting jobs to Maple Street, could become rallying cries

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for the protectionists.

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Likewise the inhabitants of any one block on Elm Street could turn on their neighbors

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on another block along the street.

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And even there the argument would not stop.

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We would have to conclude that it applies even to individuals.

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For clearly every time an individual makes a purchase he is forgoing the manufacture

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of it himself.

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Every time he buys shoes, a pair of pants, a baseball glove or a flag, he is creating

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Closing employment opportunities for someone else, and thereby foreclosing those of his own.

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Thus the internal logic of the ILGWU's protectionist argument leads to an insistence upon absolute self-sufficiency,

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to a total economic interest in foregoing trade with all other people, and self-manufacture of all items necessary for well-being.

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Clearly, such a view is absurd.

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The entire fabric of civilization rests upon mutual support, cooperation and trade between people.

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To advocate the cessation of all trade is nonsense, and yet it follows ineluctably from the protectionist position.

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If the argument for the prohibition of trade at the national level is accepted, there is

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There is no logical stopping place at the level of the state, the city, the neighborhood,

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the street or the block.

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The only stopping place is the individual, because the individual is the smallest possible

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unit.

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Premises which lead ineluctably to an absurd conclusion are themselves absurd.

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Thus, however convincing the protectionist argument might seem on the surface, there

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There is something terribly wrong with it.

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Specifically, the essence of the fallacy is a misunderstanding of the nature and function

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of free trade.

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Trade, we believe, outstrips fire, the wheel and the opposable thumb in explaining man's

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superiority over the animals, for it and it alone makes specialization and the division

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of labor possible.

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In their daily lives, people consume virtually hundreds of thousands of different items every

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year.

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If not for specialization, each person would be forced to manufacture these items by himself.

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This would be an impossible task.

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As a matter of fact, people would not even be able to produce enough food for themselves,

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let alone produce all other goods which they might desire.

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The production of food involves the production of many other things, including capital equipment.

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The production of these things would involve every person in the manufacture of all the

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items that are now distributed over an entire population.

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It is quite true that without fire, the wheel and opposable thumbs, mankind would find itself

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in a sorry state indeed.

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But without specialization, since it would be impossible for virtually anyone to even

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feed himself, everyone would be faced with the prospect of starvation and death.

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With specialization, each person can limit his productive efforts to those areas he performs

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best in.

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But trade is the linchpin that holds this system together.

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Without the possibility of trade, people would amass enormous quantities of unusable safety

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pins, paper clips, or whatever.

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Without the possibility of trade, the incentive for specialization and the division of labor

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would be gone.

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Everyone would be forced back into the suicidal attempt to become self-sufficient.

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is sufficient.

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Two.

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Another significant reason for rejecting the protectionist argument is that it fails to

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take exports into account.

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It is true that for every American flag or baseball glove imported into this country,

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some domestic jobs are lost.

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But what the protectionists conveniently forget is that for every job lost in a domestic industry

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Let us assume that the states of Vermont and Florida are self-sufficient.

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Both produce, among other things, maple syrup and oranges.

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Because of the differing climatic conditions, maple syrup is scarce and expensive in Florida,

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and oranges are scarce and expensive in Vermont.

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And oranges have to be grown in greenhouses, and Florida maple syrup comes from maple trees

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grown in large refrigerators.

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What would happen if trade were suddenly begun between the two states?

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Vermont would, of course, begin to import oranges, and Florida would import maple syrup.

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Were the ILGWU or any other protectionist pressure group on the scene, it would quickly

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point out that importing maple syrup into Florida would ruin that state's small maple

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syrup industry, and the importation of oranges into Vermont would ruin the orange industry

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there.

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The protectionists would ignore the fact that jobs would be gained in Florida in the orange

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industry and in Vermont in the maple syrup industry.

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They would focus our attention on the jobs lost due to imports and would completely ignore

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the jobs gained because of exports.

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It is of course true that jobs will be lost in Vermont in the orange industry and in the

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maple syrup industry in Florida, but it is no less true that jobs will increase in the

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maple syrup industry of Vermont and in the orange industry in Florida.

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There may well be fewer jobs available in both industries in both states, since orange

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growing can be done with less manpower in Florida than in Vermont, and maple syrup can

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be manufactured more efficiently in Vermont than in Florida.

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But far from being a bad effect, this is one of the gains of trade.

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The workers freed from these industries become available for projects that could not be undertaken

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before.

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For example, if a modern system of transportation did not exist, and industry had to rely on

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individuals carrying 100-pound loads on their backs, hundreds and thousands of people would

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have to be withdrawn from other fields to fill the needs of the transport industry.

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Thus, many projects and industries would have to be abandoned.

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With modern methods, fewer workers are needed.

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The extra workers are thus free to move into other areas, with all the consequent benefits

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to society.

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Whether or not there will be fewer jobs in the orange and maple syrup industries in Vermont

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and Florida in the final analysis depends upon the way the people wish to spend their

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newfound income.

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It is only if these people decide to spend all the newfound income on extra oranges and

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and Maple Syrup that the total employment in these two industries will not change after

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trade begins.

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Then the same number of workers will produce more maple syrup and oranges.

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More likely, though, the people will decide to spend some of their newfound income in

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these two goods and the rest on other goods.

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In that case, employment in these two areas will decrease somewhat, although this decreased

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workforce may still be able to produce more than before.

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But employment will increase in the industries whose products are most wanted by the consumers.

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Viewed in its totality then, the opening of trade between the two regions benefits both

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of them.

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Although employment will fall in the industries supplanted by imports, it will rise in export

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industries and in the new industries developing because of the availability of workers.

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But the protectionists are not entirely wrong.

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Trade does create problems in the industries supplanted, and some workers will suffer in

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the short run.

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There will, for example, no longer be a brisk demand for Vermonters who specialize in the

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production of oranges, or for Floridians who produce maple syrup.

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There will be jobs for these people in other industries, but since they will have to enter

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these fields as beginners, they will probably have to accept a salary cut.

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They may also need considerable retraining.

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So the question arises who is to pay for the retraining and who is to bear the loss associated

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with the lower salaries in the new industry.

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The protectionists, of course, would advocate that the government or the capitalists should

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pick up the tab.

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But this is not justified.

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First, it should be noted that only skilled workers face a cut in wages because of a move

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to a new industry.

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The others will enter the new industry on much the same level as that in which they

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functioned in the old.

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Instead of sweeping the floors of a maple syrup plant, they will sweep the floors of

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perhaps a textile factory.

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The skilled worker, by contrast, has specific skills, which are of greater use in one industry

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than in another.

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He is not equally useful in the new industry, and cannot command the same salary.

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Second, it should be understood that the skilled worker is an investor, just as the capitalist.

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The capitalist invests in material things, and the worker invests in his skills.

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All investors have one thing in common, and that is that the returns on their investment

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are uncertain.

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In fact, the greater the risk involved, the more the investor may gain.

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In the example given, part of the reason skilled orange growers in Vermont and skilled maple

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syrup producers in Florida were earning high salaries before the advent of trade between

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the states was the risk that someday such trade might begin.

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Should the skilled orange growers, now that they must leave the industry in which they

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were highly paid specialists, be subsidized for retraining and for the salary cuts they

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they must accept in the interim?

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Or should they bear the expenses and losses themselves?

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It seems clear that any subsidy would be an attempt to maintain the skilled worker in

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the style to which he had become accustomed, without asking him to bear any of the risk

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that made such a high standard of living possible in the first place.

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In addition, such a subsidy, coming out of tax revenues which are paid mainly by the

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3. Now consider a situation which, on the surface, seems to be the protectionist's

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nightmare come true. Imagine that there is one country which can out-produce the others

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in all industries.

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Suppose Japan, the ILGWU's bugaboo, can produce everything more efficiently than America.

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Not only flags, baseball gloves, radios, televisions, cars and tape recorders, but everything.

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Would the ILGWU's contention that we should forcibly restrict trade be valid then?

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The answer is that it is never justifiable to restrict trade between two consenting adults,

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or even nations of consenting adults, certainly not on the ground that the trade will harm

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one of them.

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For if one party to the trade thought it was harmful, he would simply refuse it.

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Prohibition would not be needed.

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And if both parties consent to the trade, what right would any third party have to prohibit

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it?

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would be tantamount to a denial of the adulthood of one or both of the trading parties, by

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treating them as juveniles who did not have the sense or the right to enter into contractual

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obligations.

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In spite of all such moral arguments, the protectionists would still want to prohibit

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trade on the grounds that a disaster would follow if it were not done.

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Let us trace the situation which would exist between the United States and Japan under

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the nightmare conditions that have been stipulated.

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Supposedly, Japan would export goods and services without importing anything from the United

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States.

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This would bring prosperity to Japanese industry and depression to our own.

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Eventually, Japan would supply all our needs, and as there would be no exports to counter

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This description may sound a bit absurd, yet the history of protectionism in the United States and the success of the ILGWU campaign indicate that such nightmares have more currency than might be imagined.

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Perhaps this horrid dream prevails because it is easier to shrink back in horror from it than to confront it head on.

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In contemplating this nightmare, the question arises as to what the Americans will use to buy the Japanese goods with.

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They cannot use gold or any of the other precious monetary metals because gold is itself a commodity.

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If Americans used gold to pay for the imports, they would, in effect, be exporting gold.

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This would counter the loss of jobs due to imports, and we would be back to the prototypical situation.

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Americans might lose jobs in radio and television, but gain them in gold mining.

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The American economy would resemble that of South Africa, which pays for its imports largely with exports of gold.

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The only other means of payment would be in the form of United States dollars, but what would the Japanese do with dollars?

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There are only three possibilities. They could return these dollars to us as payments for our exports to them,

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they could keep these dollars, or they could spend them on the produce of countries other than the United States.

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If they opted for the last alternative, the countries with whom they traded would have

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the same three options, spending in the United States, hoarding, or spending in other countries,

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and so on for the countries these nations trade with in turn.

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If we divide the world into two parts, the United States and all the other countries,

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we can see that the three possibilities reduce to two.

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Either the paper money we send out comes back to buy our goods, or it does not.

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Assume that the worst possibility happens, that none of the money comes back to stimulate

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our exports.

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Far from being a disaster, as the protectionists allege, this would actually be an unmitigated

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blessing.

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The paper dollars we would be sending abroad would be just that, paper, worthless paper,

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And we would not even have to waste much paper. We would simply print dollars with extra zeros

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added on. So, in this ILGWU nightmare, Japan would be sending us the products of their

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industry, and we would be sending Japan nothing but pieces of green paper with many zeros

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printed on them. It would be a prime example of a giveaway. The refusal of foreigners to

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To cash in their dollars would amount to a large gift to the United States.

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We would receive the products, and they would receive worthless paper.

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Contrary to the fantasies of the ILGWU and other protectionist groups, the recipients

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of large gifts do not usually suffer untold agonies.

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Israel has received reparations from Germany for many years, and gifts from the United

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States without any obvious deleterious effects.

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The recipient country does not have to discontinue its own production, for the desires of any

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populace are infinite.

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If the Japanese gave a Toyota car to every individual in the United States, they would

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soon want two, three or many Toyotas.

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Clearly it is inconceivable for the Japanese or anyone else to be so self-sacrificing as

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is to even try to satiate all the desires of the American people without recompense.

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Yet only if they succeeded in this impossible task would domestic industries collapse, because

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then everyone would have all he wanted of everything.

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But in this imaginary case, the collapse of domestic industry would be something to be

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praised, not condemned.

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People in the United States would discontinue all production only if they felt they had

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enough material possessions and would continue to have enough in the future.

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Such a situation is not only not horrible, it would be welcomed by Americans as the closest

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thing to a utopia.

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In reality, of course, the Japanese and others would not be content to pile up the dollars

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we gave them as payment for their products.

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As soon as their dollar balances went above the level they chose, they would turn the

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dollars in, thereby stimulating export manufacturing in the United States.

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They might buy American goods and thus directly stimulate American exports, or they might

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demand gold for their dollars, attack the dollar, necessitating a devaluation which

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would make American exports more competitive in the world markets.

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Either way, the dollars would come back to the United States, and our domestic export

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industries would be stimulated.

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The employment lost due to imports would be countered by increases elsewhere, just as

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in the Vermont, Florida case.

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Why would the Japanese trade with a country whose manufacturing was less efficient than

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their own?

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Because of the difference between what is called absolute advantage and comparative advantage.

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Trade takes place between two parties, countries, states, cities, towns, neighborhoods, streets,

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persons, not in accordance with their absolute ability to produce, but in accordance with

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their relative ability.

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The classical example is that of the best lawyer in town who is also the best typist.

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This person has an absolute advantage over his secretary in the provision of both legal

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and typing services.

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Nevertheless, the lawyer decides to specialize in the profession in which he has a comparative

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advantage, the law.

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For suppose he is one hundred times as good a lawyer as his secretary, but only twice

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as efficient a typist. It is more advantageous for him to pursue the legal profession and

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to hire, trade with, a typist. The secretary has a comparative advantage in typing. She

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has only 1% of the effectiveness in law compared to her employer, but she is fully one-half

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as good as he is typing. She is able to earn a living through trade even though she is

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is poorer at both skills.

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The Japan we have been imagining has an absolute advantage in the production of all goods.

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But when the Japanese return our dollars to us in return for our goods, America will export

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the goods in which it has a comparative advantage.

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If we are half as good as the Japanese in the production of wheat, but only one quarter

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Thus, no matter what situation is envisioned, even the most extreme, the protectionist argument

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proves inadequate.

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But because of the emotional potency of its appeal, importers have long been vilified.

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For their persistence in a task which is inherently helpful, importers should be looked upon as

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the great benefactors they are.