Have you ever made your own T-shirts? I bet the vast majority of Duke students wouldn't have the faintest idea how to start. Of course, if we really desired, we could grow our own cotton, knit our own fabric and sew it together. But we wisely choose not to.
The effort required to make a T-shirt from scratch would be so enormous that we wouldn't have time for much else. Forget about getting a Duke degree. And if all Americans made their own T-shirts, there would be no time to produce new medicines, manufacture cars or create any of the myriad of goods and services that citizens of wealthy nations have come to expect.
On the other hand, by going to a mall to trade our money for clothes, we can leave the T-shirt making to the experts while preserving our time for what we do best. This, in a nutshell, is the secret to capitalism, and explains why open economies are far wealthier than protected ones.
Unfortunately, many Democrats have decided that the best way to revive our economy is by spending less time at Duke and more time making T-shirts. Of course, they don't sell their programs as such--they prefer to talk about protecting America's jobs or keeping our nation "self-sufficient." But in practice, their protectionist ideas will result in America spending more resources on non-competitive industries at the expense of what it does best. Higher T-shirt tariffs will lead to higher prices for T-shirts, which means American consumers have less money to spend on anything else or to invest in those industries where the United States can be most competitive.
Free trade has certainly caused many jobs to disappear. But those who seek higher tariffs in the name of protecting jobs only see half the picture, because whenever a company moves labor overseas, the money saved from lower prices can be invested to create new jobs. For example, remember when Ross Perot famously predicted that the North American Free Trade Agreement would cause American jobs to disappear with a "big sucking sound?" He was wrong. Although many factories packed up and moved to Mexico, the overall American unemployment rate actually fell by a full percentage point during NAFTA's first year. Sure, the United States lost some jobs to Mexico, but it also gained millions of jobs in industries where America can better compete.
Some politicians don't oppose trade per se, but insist that it be "fair." They often speak of trade "concessions" that should only be made if other countries simultaneously agree to reduce their import barriers. But such talk is utter nonsense to anyone with two semesters of basic economics. Importing countries don't concede anything when they lower trade barriers--in fact, their economies gain far more in lower prices than they lose in decreased production. For example, the United States International Trade Commission estimates that the automobile industry would have earned an additional $365 million last year were it not for Bush's steel tariffs.
The more sophisticated trade opponents acknowledge that free trade leads to growth, but argue that open economies benefit only a wealthy few, leaving the lower and middle classes worse off than before. Without a doubt, the past three decades have seen an ever greater concentration of America's wealth into the hands of a select few, while the poor became poorer. But there is no evidence that this stratification of wealth has anything to do with free trade. In fact, although the European Union and the United States maintain approximately the same level of tariffs, Europe's economy has remained far more egalitarian.
The key to redistributing wealth is not to isolate ourselves from the global economy, but to enact a more progressive tax code while ensuring that the government provides each citizen with quality health care and education. Restricting trade will do nothing to reallocate America's wealth--it will only shrink the size of the pie for everyone. That's why liberal economists such as Paul Krugman have consistently supported free trade while simultaneously calling for increased social spending and a repeal of Bush's regressive tax cuts.
Of course, some people end up on the losing side of free trade. But if the political will were there, Americans could do a lot to make sure that the benefits of trade were used to help them. In particular, the government could do far more to compensate workers who lose their jobs to foreign competition. In addition, every American could be guaranteed an affordable education in order to make sure that the next generation of workers can work in the highly-skilled sectors where the U.S. is most competitive. Such programs might sound like big government, but they would actually cost far less the war in Iraq, and could be paid for by undoing a small fraction of Bush's tax-cuts for millionaires. Unfortunately, the party currently in power has shown no interest in helping anyone who can't afford to donate substantial amounts to its campaign, especially if such help involves domestic spending.
But the opposition's solution isn't much better. Although tariffs might protect a few workers in the short-run, they will ultimately stifle growth and leave the next generation of workers no better off than their parents.
Zack Klughaupt is a second-year law student. His column appears every third Friday.
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