At the recent annual convention of the AFL-CIO, president George
Meany made an impassioned plea for government intervention to “protect
American industry from cut-throat and often illegal foreign competition.”
Tariffs, quotas, agreements to restrict imports—anything to
preserve the jobs of his members. The plea has great emotional appeal.
What? Let those foreigners, willing to work for a pittance, take
jobs from American workers? Let foreign firms subsidized by their
governments “dump” products in the United States at
the expense of American firms?
Before you swallow Mr. Meany’s plea hook, line, and sinker,
just ask yourself: who spoke at the AFL-CIO convention on behalf
of the consumer, whom Meany would deprive of low-priced foreign
goods? Who spoke on behalf of farmers or of workers in U.S. industries
exporting goods overseas? After all, what’s sauce for the
goose is sauce for the gander. If we restrict imports, where are
foreigners going to get dollars to pay for U.S. goods? If we restrict
imports from them, can we complain if they restrict imports from
The Visible vs. the Invisible
Foreign trade is the classical example of an area in which public
opinion tends to be biased by overemphasis on the visible as opposed
to the invisible effects of government policy. The steelworkers
whose jobs are threatened by steel imports from Japan are highly
visible. They and their employers can see clearly the benefit to
them from restricting imports of Japanese steel. The cost is large
but spread thinly. Tens of thousands of buyers of objects made with
steel would pay a bit more because of the restriction. The Japanese
would earn, fewer dollars here and, as a result, purchase fewer
U.S. goods. But that cost too is invisible. The man who might have
had; a job producing a product the Japanese would have purchased
if they had been permitted to sell more steel here will have no
way of knowing that he has been hurt.
Workers who produce products that are sold to Japan to earn the
yen used to buy Japanese steel are producing steel for the U.S.
just as much as the men who tend to open-hearth furnaces in Gary.
We could produce bananas in hot houses, and no doubt would do so
commercially if the tariff on bananas was high enough. Would that
make sense? Obviously not—we can produce them more efficiently
indirectly by trading export goods for bananas from Central America.
It makes no more sense to provide a financial hothouse for the steel
The U.S. gains from imports, not exports. Imports contribute to
our standard of living. Exports are a cost. They are what we have
to pay for the imports. The larger the volume of imports we can
get for each unit of exports the better.
In the same way, we work to live, we do not live to work. Employment
is a means to an end. It is a means to the production of goods and
services that we can enjoy. Full employment is an empty objective
if it means employment at unproductive jobs, digging holes for others
to fill. The true goal is widely shared productive employment, and
again, the more output we can get from a given amount of work, the
The One and the Many
The upside-down view that makes exporting appear to be the goal
of foreign trade and employment the goal of domestic policy arises
because each of us tends to be involved in producing a single good
or service, whereas we consume many thousands. Our interests as
producers are concentrated, as consumers, diffused.
This bias is universal. The Japanese hurt themselves, and us, when
they interfere with free trade by restricting imports or by subsidizing
exports. But we can only increase the hurt to us, and to them, if
we retaliate by following an equally unwise policy.
As Adam Smith wrote over 200 years ago in his great treatise, The
Wealth of Nations: “What is prudence in the conduct of every
private family, can scarce be folly in that of a great Kingdom.
If a foreign country can supply us with a commodity cheaper than
we ourselves can make it, better buy it of them with some part of
the produce of our own industry, employed in a way in which we have
some advantage. The general industry of the country ... will not
thereby be diminished ... but only left to find out the way in
which it can be employed to the greatest advantage.”