Scott Sumner’s recent EconLog post on the awful distortions and fallacies that run rampant today about Americans’ trade with the Chinese is very good. Scott offers several reasons, each strong, for why people such as Noah Smith and Tim Duy (as well as Trump and his trade triumvirate) are simply, utterly, and completely wrong to accuse freer trade between Americans and the Chinese of having visited great harm (or even any net harm) on Americans.
But there’s a more fundamental point that Scott comes close to mentioning, but never quite does. It’s this: anything truthful that can be said about the economics of trade – good or bad – can be said about economic competition. That is, show me a positive economic consequence of trade and I’ll show you a positive economic consequence of competition; show me a negative economic consequence of trade and I’ll show you a negative economic consequence of competition.
Lower prices for consumers – yep, expanded trade produces this happy result. So does market competition.
New industries and jobs – yep, expanded trade produces this happy result. So does market competition.
Some workers earn higher wages and have access to better jobs – yep, expanded trade produces this happy result. So does market competition.
Some workers lose their current jobs and are unable immediately (or in some cases ever) to find equally good jobs – yep, expanded trade produces this unhappy result. So does market competition.
Some workers’ wages fall, or fail to rise as fast as otherwise – yep, expanded trade produces this unhappy result. So does market competition.
Some geographic regions lose their long-time industries – yep, expanded trade produces this unhappy result. So does market competition.
A larger dispersion in monetary incomes or wealth (that is, greater “inequality”) – yep, expanded trade likely produces this result (which is unthinkingly regarded by many to be inherently an unhappy outcome). So does market competition likely produce this result.
Trade, to the extent that it is free, is nothing more than competition that spans political borders. There is no good reason to single out a change in one particular manifestation of competition from changes in all the other many manifestations, to then measure the likes of job gains and losses that can be traced to that change in that particular manifestation, and then to conclude that the revealed benefits and costs are unique to changes in that particular manifestation of competition.
No credible economist has ever denied that changes in market competition that arise from increased trade with foreigners typically ‘destroy’ some jobs, typically reduce some workers’ wages, and often cause some towns or regions to lose their ‘legacy’ industries. Likewise, no credible economist has ever denied that changes in market competition of any sort typically ‘destroy’ some jobs, typically reduce some workers’ wages, and often cause some towns or regions to lose their ‘legacy’ industries. Such specific job destruction and specific wage reduction and specific town or regional economic changes typically arise also from new, innovative ideas of entrepreneurs – and from the lowering of marginal tax rates – and from the repeal of government regulations – and from changes in investors’ risk preferences – and from an increase in the rate of savings – and from a fall in the costs of transportation or communication – and from improvements in accounting – and from changes in cultural norms that increase women’s or blacks’ or disabled people’s or Dalits’ participation as producers in the formal economy – and from a better-educated and more literate populace – and from the deepening division of labor that occurs when population increases in market economies – and from a change in the ways that people talk about innovation and bourgeois pursuits.
Specific job and specific industry destruction, as well as reduced wages for specific workers, occur always – and unavoidably – as the consequences of market competition. These costs of competition – these costs of economic growth and of the freedom of consumers to peacefully spend their money as they choose – are not unique to competition from foreign suppliers, or uniquely intense when competition arises from abroad than when it arises from competition at home.
So it is scientifically illegitimate to treat the competition from imports – which is merely one of countless manifestations of market competition – as if it is unique in any economically relevant way. Yet treating the competition from imports as if it is unique not only lends unjustified credence to man-in-the-street fallacies about foreign trade, it furthers the designs of rent-seekers. How better to persuade the people to accept restraints upon their freedom to get the best bargains on international markets than to convince them that their and their neighbors’ livelihoods are put uniquely in peril by such commerce?
Suppose that some econometrically skilled economists were to study the effect on jobs, wages, and regional economies of the change in norms over the past 70 years that allowed blacks in America to participate in the economy more openly and without legal or cultural restraints. With sufficient skill, and with carefully targeted data-gathering, these researchers should, in principle, be able to detect such effects. What they would detect is that some non-black workers lost their current jobs, some non-black workers suffered a fall in wages, and some towns had to endure the loss or shrinkage of important employers.
The increased economic competition unleashed by the creation of new businesses and new products by black entrepreneurs, the increased competition of black workers against non-black workers for jobs, the new businesses and the business expansions made possible by the additional savings of blacks who became more prosperous – these changes all ‘destroy’ some particular jobs and businesses; they also put downward pressure on some workers’ wages.
And suppose that these economists find what they interpret as an unexpectedly long duration for some non-black workers who are displaced by this competition to recover their former economic opportunities.
Finally, suppose that these economists, when publishing their findings of such downsides of greater economic competition from blacks, conclude that these findings contradict economists’ long-held belief that economic competition is good. These economists say “You know, economists since Adam Smith have sung the praises of competition, but look here: we now have evidence that competition destroys some jobs and that many of the workers who lost these jobs don’t quickly find new, equally good jobs. We must, therefore, rethink the economics of competition.”
Would anyone take such a conclusion seriously? More fundamentally, would anyone require or believe that the economic emancipation of blacks – blacks competing more openly and fully in the market economy – should be contingent on that emancipation successfully passing a cost-benefit test carried out by econometricians? That is, would anyone proclaim, aiming to be, you know, all-scientific-and-objective-like: “We cannot simply assume that greater economic competition from blacks is good for non-blacks. It might be; it might not be. We must measure! We must gather data to look at the actual consequences. And if these data reveal that too many non-blacks have lost jobs or suffered lower wages, or that the economic competition of blacks causes non-black incomes to become more unequal, this finding should guide policymakers to prevent or at least restrain blacks from competing economically in the market”?
And regardless of the details of these econometricians’ findings, would any person with any economic good sense at all believe that over time non-blacks as a group are made worse off by the more open and full participation of blacks in the economy?
If the answer to each of the above questions is “no” – as I’m quite sure it is – then why do we treat the more open and full participation in the economy of Chinese (or Mexican, or foreign in general) workers differently?