Thursday, September 17, 2009


The Obama administration proposes to slap penalty tariffs on imported tires from China. It accuses the Chinese government of engaging in unfair trade practices, namely, subsidizing its domestic tire industry. Beyond the spectacle of starting a trade war with one of our largest and most important trading partners who also just happens to be a nation that is emerging in fits and starts from being an implacable enemy, there is no ethical or economic justification for imposing said penalties. The public face of this seriously flawed policy is that Chinese subsidies destroy American tire manufacturers and cost American jobs. The private face is that once again the rest of the country must pay higher prices for lower quality union made goods.

Penalty Tariffs Violate Man’s Natural Rights

It doesn’t matter if the accusations about Chinese subsidies were true! Even if it were true--which it most assuredly is not!--that Chinese subsidies destroy American industries and cost Americans jobs, our government has no ethical basis to forbid by its coercive police power our citizens’ right to purchase any legal good from any person or company wherever it may be located on the face of the globe. This is not a utilitarian argument or even a foreign policy argument, although both are perfectly apt in this case. It is an argument based upon the rights of a free people, which may not be legally abrogated by the state. As American citizens we delegate to our government only certain powers. Our economic freedom is not one of those powers so delegated. Economic freedom is part and parcel of political freedom, for a man is not politically free if he must seek the permission of his government to engage in trade in order to sustain his earthly body. If a government may deny man the right to purchase tires, it may deny a man the right to purchase food. And, come to think of it, that is exactly what the U.S. government does when it slaps protective tariffs on sugar cane from the Caribbean! Cheap sugar is snatched from our very mouths in order to force us to purchase more expensive domestic sugar. And now we are not allowed to purchase Chinese tires. This is a violation of natural law and, therefore, the law is illegal and should be repealed forthwith. Nevertheless, there is a lot more to say about this matter from an economic perspective.

None of Our Business

What China does internally to subsidize its home industries is none of our business. Let me repeat that—it is none of our business. Chinese subsidies harm Chinese citizens, just as American subsidies—such as farm subsidies—harm Americans. Both are to be regretted, but it is our business only to lobby for the repeal of American subsidies. Let us set a good example. If China wants to tax its citizens so that Americans can live more prosperously, that is its business and its business alone. This is the case for all supposed “unfair trading practices” that allow Americans to purchase cheaper goods from abroad. Why must our government interfere with something that benefits its own citizens, especially when it creates ill will with the rest of the world?

Case Not Proven, Because It Cannot Be Proven

It is impossible for the U.S. to isolate any one cause as the source of decline of any American industry. There are too many factors that can cause a company or an industry to decline or fail to reach what its supporters may feel is its full potential. This is especially true of American unionized industries. First of all, unions force upon these companies higher wages than would be the case in the absence of government supported legislation requiring the companies to negotiate with the unions. This cannot be denied, since the legislation exists and the unions exist. Why do they exist if not to secure higher wages than other Americans, not members of the union, would willingly accept? Unions intimidate non-union workers (and their own members!) to prevent them from accepting jobs at less than the rate that the union leadership arbitrarily demands. Furthermore, they trespass upon the companies’ factories and destroy its physical plant, while the police and the courts turn a blind eye. The fact of union violence and government’s failure to protect industry property cannot be ignored as a major source of the decline of many of previously strong American industries.

In addition, American companies are hobbled by a myriad of labor and, increasingly, environmental regulations, all of which add significant costs to company products and prevent them from employing their labor and equipment in the most efficient manner. Local governments literally extort companies to provide public services in order to obtain permission to expand their operations. This is a well-known and open secret of local government operations. Ten years ago Boeing, America’s giant aircraft manufacturer, moved its head offices from Everett, Washington to Chicago, Illinois to protest the city of Everett’s continued demands that Boeing fund its wish list of public goodies.

International Expansion of the Division of Labor

I’m sure there are many more factors that must be considered when a company loses its international competitiveness, and we haven’t even discussed the obvious one of entrepreneurial error. How can any one of them be singled out as THE cause of its difficulties? But beyond this looms another, more basic, factor that accounts for the decline of some home industries—the normal process of the expansion of the division of labor beyond our borders. Just as no one would suggest that a town or a city or a county or a state must be completely self-sufficient in all things--because the expansion of the division of labor operates to destroy old industries and old jobs and create new and more productive ones in their place, the “creative destruction” phenomenon articulated by Joseph Schumpeter--one must not look upon international trade as some sinister plot by foreigners to destroy our country job by job and industry by industry. International trade represents an expansion of the capital base to include the workforce of the entire world.

Specialization, just another word for the division of labor, accounts for all of man’s economic progress. It cannot be otherwise. Just as we as individuals no longer hunt or grow our own food, we as a nation no longer produce everything that we once produced. To say that others can do this for us more cheaply is but another way of saying that we have better things to do. When the costs of the factors of production upon which an industry depends rise in one country, this means that these factors are more urgently needed elsewhere for the production of goods that consumers value more highly. This includes labor. Cheaper foreign goods free factors of production so that they may be employed to produce these more highly valued goods. There is a reason that most advanced nations import certain products from developing countries. Developing countries are like new entrants to the labor market; they perform the less skilled jobs first before moving to more highly skilled ones later. This process is taking place even among developing nations themselves. China itself is losing some manufacturing jobs that require lower skills to less developed countries like Indonesia. This is a process to be admired and encouraged. It is in everyone’s best interest, both economically and politically, for the entire world to become more capitalistic.

The Division of Labor Promotes International Peace

A little considered byproduct of the expansion of the division of labor as represented by increased foreign trade is that it promotes peace among nations. Of course, governments seem to do everything in their powers to thwart this process, erecting trade barriers to foreign products and penalizing supposed “unfair trade” practices. But ask yourself this question: do you want to kill your barber, your grocer, your filling station owner? Of course not, because these people perform valuable services for you. But one could also say that they have taken away some of your employment. At one time people cut their own hair or had a family member do it for them. More people lived on farms and grew much of their own food. They produced much of their own fuel—no, not gasoline, but oats to feed their own horses. Do we wish to return to this more primitive, meaning less capital intensive, time? Of course not. They why do we want our nation’s business owners and laborers to continue to produce absolutely everything that we require? The fact is that more international trade means a higher standard of living for everyone involved, and the “creative destruction” of some jobs and industries is a consequence and not a cause of this beneficial process. It is a peaceful process among cooperating peoples around the world. As this process deepens, we understand that we NEED the production of the rest of the world and they NEED ours. This creates a worldwide culture of cooperation and peaceful intercourse that leads to higher standards of living among peoples everywhere. Government trade barriers promote the opposite; government trade barriers promote impoverishment and war. The choice is clear.

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