Trade Deficits: Made in America!


Reason contributor Jon Utley takes on protectionism in the pages of the American Conservative (a hotbed of Smoot-Hawleyism!) and argues that trade deficits are among the things that are still made in America. Writes Utley,

The consequences of protectionism would be far more damaging to America than critics of free trade assume. Most of our trade deficits are the result of our own policies. Protectionism is a two-way street and would injure many American companies without bringing back large numbers of factory jobs—indeed, half of the profits for U.S. firms listed on the S&P 500 index are earned overseas.

American labor has always in the past competed effectively against low-wage foreign competition. Germany today has higher manufacturing wages than those in the United States, yet it has a very favorable trade balance. Obviously there must be other factors responsible for American job losses beside China's lower wages.

He goes on to list seven reasons that focusing on trade imbalances and, especially, China's growing industrial economy, miss larger points. Here's a snippet:

Much manufacturing in China is done for American companies, which gain most of the profits. For example, the Apple iPhone adds $2 billion to the trade deficit with China, although it is entirely designed and owned by Americans and is made of parts imported from Europe and other Asian nations. China's actual input is $6.50 out of the $178 wholesale cost, according to a Wall Street Journal analysis, "Not Really Made in China." It explains that the actual trade deficit with China is about half of what the statistics show.

The same consideration applies to many other imports—sneakers, for example. A pair of Nike shoes may cost $3 to produce, which goes to China. The rest of the retail price is accounted for by advertising, shipping, design, raw materials, and profits, most of which revert to Americans.

Whole thing here.

Reason.com defends free trade, which, along with free movement, is about the best-anti-poverty program ever devised.