“The choice America faces is not between more jobs or fewer jobs. The real choice is between a dynamic world and a static world – a world of encouraging people to dream and acquire the skills to make those dreams come true and a world of encouraging people to be content with what they have and dream less.” – The Choice
America’s greatest resource is its knowledge, innovation, and ambition. Fiscally, a nation’s economic growth is best reflected in Gross Domestic Product (GDP). And while the US has led the world in GDP since 1871, it is the least trade-dependent of the 37 OECD members. Technology, healthcare, and construction are the fastest growing industries today, while manufacturing lags. Here, only 8.5 percent of US workers are needed to produce 11.39 percent of the total output of the US economy. Most American businesses, instead, operate in non-tradable goods (i.e., services). Because, as nations get richer, they manufacture fewer goods but create more services.
The economy is the culmination of individual trades. These trade decisions are subjective, however, since only the people involved in the trade know whether it is beneficial. Hence, if the transaction goes through, both sides ultimately gain.
Tariffs and quotas are purposely employed to restrain foreign competition. They interfere in a normal trade transaction by raising the cost of the goods targeted by the tariff or quota. As a result, customers now pay more for both imports and domestic goods. And as goods become more expensive, trade decisions are impacted.
Inexpensive products from abroad give American consumers more buying options and result in more money available to purchase additional goods and services. Limiting goods from other nations only stifles growth. International trade is not a zero-sum game, with winners and losers. Low-cost goods can and should be manufactured by less skilled workers, allowing our workers better opportunities based on existing or newly acquired skills. Thus, the United States specializes in the production and delivery of particular goods and services, rather than producing everything ourselves.
When manufacturing is shuttered in the US and sent overseas, those specific jobs are lost, but the overall number of jobs in the economy grows. The additional jobs are simply in other sectors. The same is true when technology decreases the number of jobs needed. There are jobs lost, but overall jobs increase. What is missed, is that when jobs end in one sector or one region, new job gains appear elsewhere. We purposefully shed our low-skilled jobs to other countries, so we can focus on higher-skilled jobs, and services, here.
Apple manufactures its products using at least 43 different countries, making “Buy American” a relic of the past. To “Buy American”, we must apply protectionist policies, preventing low-cost factors that keep new products affordable. Buying American brands is not the only way to help America. A person who buys a foreign good is also helping America. Just not necessarily in the same industry.
Technology also provides more goods at a lower cost. This frees up Americans to create the additional products and services we couldn’t possibly have dreamed of decades ago, like smartphones and Uber. So, free trade changes the type of jobs people have, it doesn’t lessen the number of jobs available. Competition drives innovation and advances society. The horse and buggy industry suffered when automobiles appeared. As did the typewriter industry, the hi-fi stereo industry, and many others. Yet, few consumers today would prefer finger-dialing to the technology of the modern-day iPhone.
Similarly, trade deficits continue to be misunderstood by many. If we import more than we export, foreigners are likely to use their American dollars for asset investment, by buying shares of stock, land, or real estate. These capital accounts are the other side of the equation from trade deficits. And since America has historically been a good place to invest, it shouldn’t be surprising that we maintain a capital account surplus.
In Russel Roberts's 2001 book, “The Choice”, a ghost of 19th century British economist, David Ricardo, returns to modern times for an inspiring economics lesson in comparative advantage and the dangers of protectionism. His fictional story centers around the difference between the direct manufacturing of goods, and its alternative, free trade. The moral of the story shows why America should manufacture medical drugs, for example, while Japan manufactures TVs. Then when we trade one for the other, we are all better off.
Advances in technology and free trade can surely result in the loss of American jobs in certain industries. But protectionist policies also result in the loss of jobs, in other American industries. Rather than apply tariffs and quotas, our government should focus on policies that provide the greatest incentives for innovation. The best strategy, thus far, is unrestricted trade. Enormous opportunity lies in the dismantling of outdated industries and processes, for the benefit of enhanced products and practices.
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