|Bright Promises, Dismal Performance:
An Economist's Protest
by Milton Friedman
In Defense of Dumping - February 20, 1978
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 us?
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 industry.
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 better.
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.”