Trade Barriers; R. Shannon

About 50 years after Adam Smith wrote, John Stuart Mill in 1829 clearly explained and soundly de nounced such restrictive policies in Professor Shannon teaches in the Economics De partment, Clemson University. 1?() an admirable essay entitled "Of the Laws of Interchange Between Na tions." Mill was following in the footsteps of Smith, who openly op posed the mercantilistic policies whereby European nations had in terfered with trade. As the basis for his arguments, Mill expounded the ideas of his more recent predecessor, David Ricardo, who had demon strated that there is mutual benefit for countries which specialize and trade on the basis of "comparative advantage." This simple and fundamental prin ciple can be readily illustrated by the examples of the businessman who hires a secretary, the doctor who em ploys an accountant, or the working mother who turns her child over to a baby sitter. The businessman may be a better typist, the doctor may have superior calculating abilities, TRADE BARRIERS 121 and the mother may excel in provid ing affection and entertainment for her child. But by directing their time and energy to their professional du ties, these three people will earn more than enough to pay their em ployees. The businessman and doc tor will have even more time for lei sure, and the working mother will be better able to provide her child with needed food and clothing.

Yet, what we all implicitly accept and practice in our daily lives, we are pathetically apt to forget when we read or hear news about how some American industry is "hurt" by for eign competition. Nonetheless, the same principle applies. If the Japa nese can produce cars and motor cycles more efficiently relative to other products such as beef, then we should buy our cars from them in ex change for our beef. If the Chinese can produce textiles by giving up less of other products than we must forgo here, then we should buy from them. Not only will ,we enable our consum ers-especially the poorer ones-to improve their living standards; we will also provide jobs for our produc ers of wheat and soybeans, items in which we have a comparative ad vantage. If some people criticize the Chinese for "underselling" our pro ducers, they should take note of Mill's words: "the world at large, buyers and sellers taken together, is always a gainer by underselling."2 Yet, despite the common sense of the free-trade argument, we con tinue to erect barriers to impede trade. Just as Ricardo and Mill ad vocated free trade, they reviled re strictions. In 1817, Ricardo had writ ten that "the sole effect of high duties on the importation either of manufactures or corn ... is to divert a portion of capital to an employ ment which it would not naturally seek."3 Mill similarly deplored bar riers which have "the effect of en couraging some particular branch of domestic industry," for, he said, they are "purely mischievous."4 We Hurt Ourselves Sometimes it is argued that since foreign governments impose bar riers and provide subsidies of their own, they have rendered laissez faire unfair. Certainly, such policies abound and they surely hurt our ex porters. Shouldn't we engage in "tit for tat"? If we do, we are sure to suf fer for it; as Mill put it, trade bar riers are "chiefly injurious to the countries imposing them."5 The loss to American consumers when our government restricts im ports outweighs the gain to the pro tected industry. Trade barriers such as quotas and tariffs raise the price on all the protected products, whether their origin is domestic or foreign. That is the clear impact, for example, in the case of the agree ment by Japan to limit the export of cars to the U.S. Both American and 122 THE FREEMAN Japanese producers can hike their prices; both Chrysler and Toyota gain. The costs to our consumers ex ceed our producers' benefits.

Moreover, by setting up trade bar riers, we abdicate the opportunity for setting a good example. As Mill wrote in his essay, "A country can not be expected to renounce the power of taxing foreigners unless foreigners will in return practice to wards itself the same forbearance."6 We should expect foreign countries to do as we do, not as we say. Until we renounce our own protectionist sins, how can we justify throwing stones? Before yielding further to the temptation to plunge deeper into the web of trade restraints, it helps to remember that basic fact of all eco nomics: our resources are scarce. We simply cannot produce all the goods and services people want and need. Thus we must bend all our efforts to ward employing our resources to their utmost efficiency. Mill said it well: it is "the common interest of all nations that each of them should ab stain from every measure by which the aggregate wealth of the com mercial world would be dimin ished."7 On these grounds we should oppose all laws requiring our cars to be manufactured on the basis of "lo cal content" and others forcing us to "buy American." Suggesting that they simply emulate the practice of others is to argue that two wrongs make a right.

Of course, it may be sadly true that if the Reagan Administration had not acted, Congress would "beat it to the punch" with even more punitive legislation. In that sense, the Administration's policies may well be a lesser evil. But there is another option. The Administration could, instead, devote some time and effort to explaining to the American public the folly of such policies. Then, just like the businessman, the doctor, and the working mother mentioned be fore, President Reagan and his staff would be making the best use oftheir resources. And if they need any as sistance articulating their ideas, they will find ample help in an essay more than 150 years old written by John Stuart Mill. @ -FOOTNOTESlAdam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (New York: Modern Library, 1937), p. 13. 2John Stuart Mill, Essays on Some Unsettled Questions of Political Economy (2nd ed., 1874; New York: Augustus M. Kelley, 1968), p. 36n.

3David Ricardo, The Principles of Political Economy and Taxation (first published in 1817; New York: E. P. Dutton, 1911), p. 210. 4Mill, p. 28. 5Mill, p. 38. 6Mill, p. 29. 7Mill, p. 31.