The Candidates' Trade Nonsense

Both candidates indulge the superstition that while exports are good, imports and outsourcing are bad.

A national political campaign can be a good vehicle for educating the citizenry about vital issues—whether fiscal balance requires tax increases, say, or the pros and cons of health care reform. By Election Day, Americans who have been paying attention will know more about such matters than they did when the race began.

They will know less, though, about international trade and its value to American consumers, producers and economic health. In this, Mitt Romney and Barack Obama call to mind what the 19th-century House Speaker Thomas Brackett Reed said of his foes: "They never open their mouths without subtracting from the sum of human knowledge."

As economist Daniel Ikenson of the libertarian Cato Institute says, "Both of them came to the conclusion it's easier to demagogue than to explain the benefits of trade."

Romney has run an ad asserting that the president "sold Chrysler to Italians who are going to build Jeeps in China." Like that's a bad thing? Chrysler and its workers were lucky to find a buyer with the means to turn it around, and undertaking production in the world's biggest auto market is smart business.

Romney's implication is that Americans lose when Italians invest in car production here and lose again when a U.S. company invests in car production in China. Not so. We gain employment opportunities when foreigners put money into our economy. We receive income when U.S. companies earn profits abroad.

It's not accurate to suggest, as Romney does, that Chrysler is closing down plants in this country to move production to China. It is actually increasing production from its U.S. Jeep plants. But carmakers generally locate production where the buyers are, which is why so many foreign companies have plants here.

Romney has plenty of help spreading misconceptions. Obama boasts that by acting to "make sure that China was not flooding our domestic market with cheap tires," his administration "saved a thousand jobs." What he doesn't say is that he forced Americans to pay more for tires.

Saved jobs? His measure did save as many as 1,200 jobs in the tire industry, according to the Peterson Institute for International Economics—but at a cost of at least $900,000 per job. Does it make sense to spend $900,000 to save a job that pays, on average, $40,000 a year?

But that's not the full extent of Obama's feat. IIE says that since they had to spend more on tires, consumers had less to spend on other things. Overall, the tariff destroyed twice as many jobs as it saved.

Both candidates indulge the superstition that while exports are good, imports and outsourcing are bad. In reality, it makes no sense to make something at home if we can buy it cheaper from elsewhere. The point of producing is to allow consumption. Raising the cost of consumer goods by shutting out imports makes us poorer, not richer.

Outsourcing is a competitive necessity in a global economy. If a U.S. firm can't compete with companies producing in Mexico or China, it's wiser to relocate its factories abroad than to go on losing money here.

The assumption promoted by Obama and Romney is that unless we act against the Chinese, our manufacturers will be unable to compete. In fact, the value of American manufactured goods, adjusted for inflation, has risen by 10 percent over the past decade.

That's easy to forget because the number of jobs has shrunk—a consequence of rising productivity, which allows companies to do more with less. Another reason it's easy to forget is that Chinese output has grown. But as of 2010, the World Bank says, the U.S. remains the world's biggest manufacturer. And we are far better off with China exporting manufactures than exporting virtually nothing, as was the case a generation ago.

If there is any good news about the candidates, it's that their policies will most likely be better than their rhetoric. Aside from tires, Obama has generally avoided protectionism, while signing free-trade deals with South Korea, Panama and Colombia.

Romney will hear from plenty of Republican CEOs who favor freer trade. Few experts believe he will keep his pledge to label China a currency manipulator, setting off a trade war. Obama, after all, slammed President George W. Bush for failing to do so—but followed suit.

Usually, we yearn to believe that presidential candidates are telling the truth. When it comes to trade, we can hope they're lying.

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  • tagtann||

    OK I am NO fan of Obama, but one thing I know for sure, if Romneys lips are moving, he's lying lol

    www.anon-e.tk

  • BakedPenguin||

    It's great when they use the "their government subsidizes those exports!" line. Yeah, their government just handed Americans millions of dollars. That's a good reason not to buy their crap.

  • Jake W||

    Interfering with the economy is the equivalent of paying whack-a-mole, every mole that pops up is a minor economic problem that will go back in it's hole some time - Obama and Romney will be a swingin' at those moles and each swing is $1,000,000,000

  • OldMexican||

    Both candidates indulge the superstition that while exports are good, imports and outsourcing are bad.

    This is one of the oldest myth in economics (along with usury) that seems to outlast cockroaches, even. Adam Smith wrote a whole treatise on mercantilism, which later became famous as The Wealth Of Nations. Still, politicians continue to espouse it in the same manner a crank would espouse phlogiston or an earth-centered universe.

    In reality, it makes no sense to make something at home if we can buy it cheaper from elsewhere.

    Of course not! The Law of Division of Labor, The Law of Comparative Advantage - these are as unbreakable as the laws of physics, yet people still think they're somehow man-made inventions that can be reshaped to their needs!

  • Fluhdoten1||

    Economics cannot be isolated from other aspects of reality.

    If it could you would be correct.

    But when jobs are outsourced to China, and we reap $ rewards for cheap goods, we are simultaneously asking our free workers to compete with china's slave workers.

    economics and liberty are indivisible. Asking free men to compete with slaves will, in practical terms, reduce his liberty to the lowest denominator: he will be forced to work as a slave just to maintain economic parity.

    In what mindset does liberty then exist? globalism only works for "like" nations.

    Indiscriminant Globalism is just a backdoor to eroding liberty of free nations by merging them with slave. Liberty is moot if you are forced to compete with slaves for resources.

    Theoretically you are free, but practically you are working for resources against slaves. they will work hard and for less.

    Can you really say you are a free man when you are on the grid, which grid is connected to slaves?

    You are just a slave, possibly shielded from low conditions due to leverage or education or skill. As those things even out, your children will share same practical freedom as chinese children.

    Free trade with slave states = importing slavery. Yes its a financial gain, but the cost is paid in freedom and opportunity for our lower class.

  • OldMexican||

    That's easy to forget because the number of jobs has shrunk—a consequence of rising productivity, which allows companies to do more with less. Another reason it's easy to forget is that Chinese output has grown.

    Indeed, but there's no denying the effects on the labor market of all the impediments and hurdles to employment that the US Government has imposed on producers, presumably to protect the interests of workers, to wit: FICA, FUTA, ADA, Equal Opportunity Employment, minimum wage laws, health insurance mandates, litigationitis (exacerbated by the very laws that purport to "protect" workers"), etc.

    If there is one truism that can be applied in this case: It may cost me a bit more to pay a kid HERE to build trinkets than it is to pay a Chinese worker; but were not for all the impediments that artificially increase the cost of employment, the real difference in cost between the two workers would disappear if one takes into account LOGISTICS.

    Because of comparative advantage, many production avenues can only be pursued by setting up shop in foreign countries, but other avenues would still make more sense to keep in the U.S. - except for the fact that it is, today, not cost-effective because of the heavy hand of government!

  • CE||

    Or the effect of laws and proposed laws that kick in when a company gets to 4 employees, or 10, or 50, or 100. Gee, I wonder if any companies right under those thresholds have ever put off hiring workers?

  • CE||

    Apparently it's hard to teach people what "comparative advantage" means. Even Chapman doesn't try.

  • MWD78||

    "Outsourcing is a competitive necessity in a global economy. If a U.S. firm can't compete with companies producing in Mexico or China, it's wiser to relocate its factories abroad than to go on losing money here.

    The assumption promoted by Obama and Romney is that unless we act against the Chinese, our manufacturers will be unable to compete. In fact, the value of American manufactured goods, adjusted for inflation, has risen by 10 percent over the past decade."

    that's all good and fine in theory, but how are American companies supposed to compete against borderline 15 cent an hour slave labor in third world countries?

  • Jake W||

    Near 15 cent an hour slave labor here.

  • Fluhdoten1||

    The only way this is viable is if we guarantee every individual has enough education or skill training to rise about slave labor.

    Slave nations can make the grunt goods, we can make other stuff.

    Of course this will never work, ppl fall between cracks, and there will always be a lower class.

    It's this lower class that will compete with slaves. Thus having a practical freedom equal to a slave. Which eventually will bleed thru to middle and upper classes.

    Free trade = importing other countries level of libety

    its fine to do for free countries, but not china.

    Govt should impose an import tax on top of all slave goods to make them equal to cost of free man goods. This tax money should be used to fight this problem or to enrich the american people.

  • Rick Santorum||

    "Why won't these Americans work as cheaply as the Chinese? If they were willing to work 12 hours a day in a sweatshop, there'd be no outsourcing!"

    Idiot lolberts.

    BUT WE'RE BUYING THEIR GOODS SO CHEAPLY!!!! *ignores the cost of Disney t-shirts*

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