Wednesday, June 15, 2016

Free Trade Will Continue to Make America Stronger and American Consumers More Prosperous

Is free trade good or bad? Is competition good or bad? Is being able to buy goods and services for less money good or bad? How about productivity, skills and knowledge?

And the correct answer to each and every question posed above is the same --- good. And that's because global trade has made and will continue to make America and Americans the most prosperous society the world has ever known.

Despite all the election year rhetoric, global free trade is good for Americans, and so is an individual consumer's free choice. Both global free trade and individual free choice make us as consumers more prosperous and as producers more competitive.

And if for whatever reason (made in America?) we opt to buy that which is more expensive and/or of lower quality, nobody will or should try to force us to do otherwise. It's our money we're spending, and free choice is a bedrock American principle and way of life.

For an illustration of what this false narrative being put forth this political season concerning the freedom to choose what we buy is all about, let's assume a company located in Mexico, China, Vietnam or elsewhere agrees to produce and ship to our vast American market its products at no charge, aka free.

If high value products imported from Mexico, Vietnam or China were to be offered to American consumers for free, we would be crazy not to allow Americans to accept these 'no charge' gifts. And as free-to-choose Americans, as consumers our lives would be enriched immediately and greatly.

Now let's assume that the offered price of these imported products is greater than zero but less than 50% (or 40%, 30% and so on) of what they would cost to make here in the U.S. As consumers we would still be inclined to buy the products at the best delivered price and value, regardless of the source.

Buying the most for the least had made us the most prosperous and competitive nation in the history of the world. Free markets work to our advantage as well as the advantage of our workers and consumers. Running away from competition and setting up barriers to imports are never the right answers.

And besides the global competition, there's always the alternative of using robotics to replace human labor which proves to be too costly for the freely spent dollars of free-to-choose American consumers.

Vastly more expensive Amazon, Wal-Mart and Target offerings, more costly Nike and other shoes and apparel, higher priced Apple and Samsung smartphones and computers, and priced out of the market Toyota and Honda cars are not what the vast majority of Americans will want or be able to afford to buy.

The vast majority of We the People want to buy what we want to buy at the lowest price. See Wal-Mart and P&G: A $10 Billion Marriage Under Strain for a good overview of how competition in the private sector serves demanding consumers.

So despite what Donald Trump, Hillary Clinton, Bernie Sanders and others may say, restricting imports and increasing tariffs aren't the easy answers to our employment and compensation issues. In fact, the more trade the better, because healthy global competition, along with a higher skilled, more knowledgeable, productive and higher compensated American workforce, will make all our lives better.

Milton Friedman's Favorite Book on Trade should be required reading for all Americans, including Donald Trump. It offers this compelling argument and advice:

"Adam Smith wrote the most influential case for economic liberty, “The Wealth of Nations” (1776), but the best book on free trade probably came from our side of the Atlantic.

Though fewer people remember the American economist Henry George, (his) book “Protection or Free Trade” (1886) was . . . the most rhetorically brilliant work ever written on the subject. In it George demonstrated how free trade benefits a nation that opens its markets, even if other nations close theirs. “If foreigners will bring us goods cheaper than we can make them ourselves,” he declared, “we shall be the gainers.”

As George pointed out, trade is voluntary, driven by individual buyers and sellers. “Trade is not invasion,” he wrote. “It does not involve aggression on one side and resistance on the other, but mutual consent and gratification. There cannot be a trade unless the parties to it agree.”...

What about the argument that tariffs are needed to support vital domestic industries? George observed that these political favors will inevitably go not to the deserving but to the strong and unscrupulous. See if this sounds like Washington today: “infant industries have no more chance in the struggle for governmental encouragement than infant pigs with full-grown swine about a meal-tub. Not merely is the encouragement likely to go to industries that do not need it, but is likely to go to industries that can be maintained only in this way, and thus to cause absolute loss to the community by diverting labor and capital from remunerative industries.”

Using tariffs to protect domestic producers from lower-cost foreign competition also harms businesses further down the supply chain. For instance, a tariff that raises the price of steel increases the cost of everything made from steel. And there are more jobs at stake in steel-using industries (commercial construction, transportation, machinery) than in steel-producing industries. . . .

War was the analogy in what are perhaps George’s most famous lines: “Blockading squadrons are a means whereby nations seek to prevent their enemies from trading; protective tariffs are a means whereby nations attempt to prevent their own people from trading. What protection teaches us, is to do to ourselves in time of peace what enemies seek to do to us in time of war.”

Something to ponder as 21st-century politicians threaten retaliatory tariffs against foreign competitors—which would simply force Americans to pay more for many things. “No other nation,” George reminded us, “can thus injure us so much as we shall injure ourselves.”"

Summing Up

Trade is good, and so is competition.

We need to look no further than the monopolistic U.S. post office and government run educational system to see the costly and debilitating results of a lack of competition.  

Having a productive, highly skilled and knowledge based world class competitive workforce are necessities.

Let's allow our fellow Americans to buy from others those comparable or better products that they will make available at a lower price and higher value than we will domestically.

And as Americans let's work hard at improving our skills and knowledge so we can provide global markets with the world's highest quality products and services.

That's both the winning and the American way.

Thanks. Bob.

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