Jobs and Trade

Unemployment is the great puzzle of our time. It perplexes politicians, confuses officials, and even entangles economists. It persists and continues to grow despite all the government programs that mean to reduce it and the tax dollars spent to alleviate it.

Politicians and pundits often explain unemployment in protectionist terms which are among the oldest and most controversial in economics. Unemployment, they claim, is the price we pay for our participation in a global economy with millions of unemployed and underemployed people who are willing to work for 25 cents an hour. “Free trade” is “unfair trade”; it condemns American workers to the indignities and hardships of unemployment.

But if foreign trade actually were responsible for corporate layoffs, the phenomenal rise of imports and exports in recent years should have disemployed most Americans. According to U.S. Department of Commerce statistics, U.S. general imports in 1950 amounted to $8,954 billion. By I960 they had nearly doubled to $15,073 billion. By 1970 they had risen to $40,356 billion. During the 1970s they soared to $244,871 billion, and during the 1980s to $495 billion. This year they may exceed $600 billion. Surely, if imports would destroy jobs, this 6,700 percent rise in imports since 1950 should have thrown most Americans out of work.

In fact, it is difficult to imagine our present working conditions and standards of living if the U.S. government had turned inward and closed its borders in 1950, as the Hoover Administration did in 1930. Even if the disruption of trade and immediate foreign retaliation would not have brought another depression, the crushing burden which liberal administrations placed on the economy during the 1960s and 70s would surely have depressed the economy and drastically lowered American levels of living. Similarly, if there had been no foreign investments, the staggering budget deficits of the 1980s and 90s would have drained the capital market and paralyzed the economy.

Further, international competition is as beneficial as domestic competition. It forces sellers to outdo one another by offering better and cheaper goods and services. Protective tariffs and other trade restrictions effect the very opposite; they permit the protected producers to offer inferior products at higher prices. They cause production to shift from places in which the natural conditions of production are more favorable to places in which they are less favorable. They force labor to move from export industries paying high wages to the protected industries that may pay lower wages. In short, trade restrictions both hamper production and produce lower standards of living. The net result is fewer, not more, jobs.

Employment is always a phenomenon of productivity and cost. In a market economy there is an unlimited demand for labor that makes productive contributions. Labor that costs more than it is expected to produce, whether it is unskilled or armed with triple degrees, is devoid of any demand. In the eyes of potential employers, it is unproductive. This applies to actors and administrators, systems analysts, software programmers, engineers, and aeronautical scientists. If young Ph. D.s in mathematics are unable to find employment, employers believe them to be rather “unproductive” considering their cost and productivity.

Every participant in the labor market is under pressure to adjust in order to stay productive. Of course, a person is free to ignore the pressures; the typist may continue to pound the typewriter. But she cannot justly insist that she be subsidized by fellow workers and employers. The same is true of a university-trained aeronautical engineer who has learned to build great military planes. In times of war and preparations for war he is in great demand. In peace he will have to learn peaceful pursuits. He does not have the right to live off the labors of others.

The competitive position of an enterprise in domestic as well as international markets is determined by its total costs of which labor costs are only one of many components. In capital-intensive industries, such as the pharmaceutical, chemical, aeronautical, steel, tool-and-die industries, the cost of capital tends to determine competitiveness; in labor-intensive industries the total cost of labor is decisive. However, there are no labor-intensive American industries that compete with foreign labor. Our service industries need not fear foreign competition as they are protected by immigration restrictions.

The protectionist argument is wrong: free trade is fair trade.