For two years lobbyists pestered Congress with one bad argument after another for a trade bill, only to fall afoul of a veto in May. Their clients may have been unhappy, but the lobbyists for protectionism were delighted. The trade bill was a jobs bill for them, and they got paid even more to keep on arguing "how insensitive" the president was.
Unfortunately, however, the administration did not resist the illogic of "fair trade." The vetoed bill would be just fine, it told Congress, if one or two details were removed. Since the most important such detail—the plant closing notification provision—was merely election-year bait to begin with, no real battle ever occurred over the substance of protectionism versus open markets.
The trade debate is a game in which those who know how to serve and volley with words win prizes, while slower wits mumble, "Gee, why didn't I think of that?" Some people, on both sides, are simply walking around with "kick me" signs pinned to their intellectual backsides. Logical fallacies are embedded in the common terminology everyone uses. And most economists, even those who strongly favor free trade, have failed to overcome the handicap of language.
This failure has now set the stage for a major downturn in the global economy, a downturn that can only have an adverse impact on U.S. economic growth. Now that protectionism is descending on us without resistance, it is time to review how it came to pass.
The protectionists talk a great deal about "fairness." They point to the closed markets of our trading partners and claim they are unfair to American producers. Foreigners can sell their goods here, but we can't sell "ours" over there. Americans are fair; foreigners are unfair.
Fairness, essentially, means treating people equally, without favoritism—equal rules of the game for all players. But fairness acquires a new meaning in the mouths of the protectionists.
Rather, "fair trade" advocates have in mind fairness akin to the parental behavior of Cinderella's stepmother, who treated her own daughters quite differently from the unfortunate heroine of the fable. They want to harm some people to help others.
One of the most assertive American "stepmothers" is Clyde Prestowitz, former trade negotiator in the Commerce Department. Prestowitz was instrumental in putting together the semiconductor pact, in which Japan agreed to restrict computer chip exports to "protect" Prestowitz's "daughters," U.S. chip makers. This agreement has hurt every downstream consumer of computer chips—from computer manufacturers to appliance makers—and has significantly damaged U.S. competitiveness.
But you won't learn about these effects from Prestowitz. He went on to pen Trading Places: How We Allowed Japan to Take the Lead, and is now active on the public speaking circuit. And he defends his chip-protection achievement as an example of greater fairness in international trade.
What's omitted from the argument over "fair trade" is the context: the marketplace, in which there must be buyers as well as sellers. A foreign government's protectionism bestows privileges and extra profits on sellers in its domestic markets but is unfair to buyers there, who are denied the benefits of lower prices and the widest selection of goods.
Why should U.S. officials care so much about the domestic market restrictions of Europe or Brazil? In every other sphere of international relations the watchword is sovereignty and nonintervention. The U.S. government won't interfere in the internal affairs of Ethiopia or Cambodia to prevent economic policies that cause starvation or mass murder, so why the passion about Japanese quotas on oranges and beef? The answer is venal: nobody in the United States profits by saving Ethiopian or Cambodian lives, but some Americans would profit from more open foreign markets.
Essentially, protectionism tries to help some American producers at the expense of American consumers (and other producers). But the U.S. government's duty is to treat all Americans fairly.
Sanctions such as those imposed by the new trade law supposedly make it possible for our trade negotiators to gain concessions by threats of retaliation against foreign business owners, who may not even support their government's trade policies. The trade negotiators want these tools to help them "fight for" some American sellers.
But in fact, the evil stepmother must be just a sadist—she doesn't even help her own. Economic researcher Jim Powell, author of The Gnomes of Tokyo, canvassed the 30-year record of trade retaliation by the U.S. government. Powell found the record of total failure is exceeded only by the dogmatic belief in "tough negotiating" by people like Prestowitz.
Powell asked the U.S. Trade Representative's office for specific examples of where and when the retaliation tactic has actually worked to open up markets and benefit American sellers. The answer: not in Europe; not in Latin America; and if in Japan, only with cigarettes and aluminum ingots—and not very much in those cases either. The recent switch by Japan from quotas to tariffs on oranges and beef—supposedly another victory for our tough negotiators—will really benefit producers in Brazil, where oranges are cheaper to export, and Australia, where cattle are leaner and closer to Japan's market.
The abuse of logic and language in the trade debate extends beyond the misuse of fairness. Take the sleight of hand whereby it is claimed that some Americans are treated unfairly by foreign governments, therefore all Americans are treated unfairly by foreigners. (This trick is known as the fallacy of illicit process; a particular term in the premise of a syllogism is taken universally in the conclusion.) Clearly the foreign producer who offers you clothing, electronics, automobiles, or petroleum at lower prices or better quality than anyone else is not doing anything unfair to Americans—neither to you nor to its American competitors.
And most Americans don't export anything. In the case of "our" exports, the illogic is compounded by the fallacy of composition: "My exports and your exports are 'our' exports; but I don't export anything; therefore your exports are 'our' exports." We talk about "our computer industry," but most of us don't own any shares in computer firms. "Our" exports of farm products didn't come from my garden.
These fallacies are also visible in reports of a trade deficit. Some Americans make products for export. Some Americans buy and consume imported products, in preference to domestically produced brands. With strong economic growth in the United States, imports increase. Exports increase with economic growth abroad. Yet the trade deficit is figured by subtracting one total from the other: your two apples minus my three oranges makes "our" fruit deficit—this is the fallacy of composition.
The emotional appeal to patriotism, on which the power of the argument for protectionism rests, works only by using these logical fallacies. Otherwise everyone would realize that the trade deficit—an abstract statistical measurement of dubious accuracy—has no real impact on our daily lives. Someone who doesn't listen to sophistry knows that lower prices, higher quality, and wider selections in the marketplace are better. Congress, by contrast, voted overwhelmingly to "do something" about this situation in the name of "fair trade."
Behind the patriotism, the concealed racism of Japan-bashing is almost visible—particularly when you notice the European Economic Community has a far more restricted market than Japan. The alarm over foreign investment in the United States concentrates now entirely on Japan, while the much larger British and Dutch holdings are ignored. (Remember when it was the Arabs who were "buying up America"?) The European investors have simply been here longer and share ethnicity with more Americans.
Normally a person of good will would applaud the rising standard of living in Korea, Taiwan, and other newly industrializing countries. The focus most recently, however, has been on "losing it" in America, when in fact our standard of living has been rising consistently and our manufacturing base has become stronger. Only some kind of irrational anxiety can explain the widespread opinion that in the midst of the longest peacetime expansion in history, the American economy is in trouble.
Francis Bacon, in his essay "Of Envy," described this anxiety, where a superior or more fortunate person perceives the improvement of others as his own decline and seethes about it. "Men of noble birth are noted to be envious towards new men when they rise," he wrote. "For the distance is altered: and it is like a deceit of the eye that, when others come on, they think themselves go back."
Envy—a desire to bring others down just for the satisfaction of it—appeals to the quiet anger of everyone who had to change jobs or relocate in the past eight years, during the rapid economic recovery from gross monetary and energy policy mistakes of the 1970s. The number of people changing jobs, whether voluntarily or involuntarily, has been very high in this decade compared to earlier periods. Overall, more than 15 million additional jobs have been created in the United States since 1981, but that figure is net—more than 23 million new ones were created, but 8 million jobs were lost.
The vast majority of people who made a career transition did it successfully and have suffered little or no economic demotion. Real per capita personal income nationwide has grown 12 percent. In constant 1986 dollars, the percentage of families earning less than $20,000 a year declined from 33.4 to 31.8 percent, while those earning more than $50,000 rose from 15.9 to 20.7 percent between 1980 and 1986. Nevertheless, the idea persists that the old jobs were better and that their disappearance is somehow the fault of international competition. The trade bill is a way to "get even" with foreigners who are portrayed as advancing at "our" expense.
As old professor Weaver said, ideas have consequences, and irrational, illogical ideas appealing to the emotions seem to have even more powerful, effective consequences than dry logic. This time, there's no fairy godmother to save Cinderella from the whims of her unfair stepmother.
Contributing Editor Joe Cobb is a senior economist with the U.S. Senate, specializing in international economics.