The ongoing globalization of economic life leaves many Americans nervous and suspicious. Pat Buchanan has played to this anxiety with his book, The Great Betrayal, a root-and-branch rejection of free trade in favor of a "new nationalism."
In this series, Cato Center for Trade Policy Studies scholars take issue with much of what Buchanan writes, and offer an alternative perspective to Buchanan's protectionist analysis.
Buchanan on imports: "Americans no longer make their own cameras, shoes, radios, TVs, toys. A fifth of our steel, a third of our autos, half our machine tools, and two-thirds of our textiles and clothes are made abroad."1
It is often observed that the export of goods and services creates jobs for Americans. The often-used rule of thumb is that every $1 billion in exports produces 20,000 jobs. But the reverse cannot be said: imports do not cost jobs. Rather, they create more jobs on net, better jobs, and higher living standards.
The goal of economic actions by individuals and enterprises is not production but profit and consumption. Individuals want to make more money so they can purchase the necessities of life such as food and shelter, time-saving goods such as microwave ovens and washing machines, or leisure goods such as televisions and compact disc players. Individuals seek money to pursue hobbies and sports, to attend plays and movies, to go on vacations, to raise children, to help family or friends in need, and to give to charities and causes in which they believe.
Imports, by lowering the prices and increasing the availability of products, improve the lot of Americans in their role as consumers. If individuals could not exchange their labor for the goods and services that are the ultimate goal of labor, there would be no incentive to work.
The myth that imports cost jobs results in part from the mistaken belief that there are a fixed number of jobs. But consider an example. Some might contend that if Americans purchase more steel from Brazilians, there will be more Brazilians working and more Americans out of work. Unemployment in the United States would rise. Actually, it is true that there might be fewer Americans working to produce steel. But the costs for manufacturers using steel would go down or at least not rise. Thus Caterpillar Tractor would be more competitive, in both American and foreign markets. American retail farm equipment merchants would sell more products. And American farmers would be more competitive because they could secure less costly or higher-quality equipment. In other words, free trade in steel might "cost" some jobs but would create others.
Conversely, protectionism costs jobs. Higher steel prices and supply problems resulting from import restrictions did harm American manufacturers using steel in the 1980s. During that same decade, U.S. restrictions on textile and apparel imports cost jobs in the retail and other sectors. Each textile or apparel job — with an annual wage of around $15,000-$20,000 — was "saved" at a cost of about $50,000.2
It is true that with free trade, workers in one profession might have to change jobs. But that is true when one domestic producer is more efficient than another. Job turnover in the United States is the highest in the industrialized world, but so is job creation. Competition, both domestic and foreign, gives Americans the incentive to redistribute the factors of production quickly, from the production of lower-valued goods and services to higher-valued ones.
There is never a shortage of jobs for workers to do. Rather, government employment policies that interfere with the market, minimum wage hikes, and regulations hamper the ability of entrepreneurs to employ willing laborers. In a free economy, the question is at what level of wages and benefits will a worker be employed? The answer depends on how well the skills of the workers match the demands for labor and the productivity of the economy.
1. The Great Betrayal: How American Sovereignty and Social Justice Are Being Sacrificed to the Gods of the Global Economy, by Patrick J. Buchanan, New York: Little, Brown, Page 13.
2. Gary Clyde Hufbauer and Kimberly Ann Elliott, Measuring the Costs of Protectionism in the United States (Washington: Institute for International Economics, 1994), p. 5 and p. 13.
For a general overview of The Great Betrayal, see Brink Lindsey's review, which appeared in the July 1998 issue of Reason magazine.
More in-depth analysis of The Great Betrayal:
- Buchanan on the history of U.S. protectionism: "The Truth About Trade In History" by Bruce Bartlett
- Buchanan on national sovereignty: "Sovereignty: Individuals versus Governments" by Edward L. Hudgins
- Buchanan on the trade deficit and jobs: "Trade Deficits Don't Mean Lost Jobs" by Daniel Griswold
- Buchanan on the North American Free Trade Agreement: "The Success of NAFTA" by Daniel Griswold
- Buchanan on imports: "The Value of Imports" by Edward L. Hudgins