Making America Great Again Requires Opening up Markets
Originally published at Marginal Revolution on January 25, 2019 by Gwayne Gautreaux
If we truly want to make America great again, continue doing what has made America great in the first place. It is rather dangerous to deviate away from the practices that have traditionally made Americans the most prosperous nation on Earth.
If leaders want Americans to continue living with the prosperity and high living standards that have been the envy of the world, why would we challenge the very nature of what created this wealth?
I do agree with President Trump in one respect to his rhetoric on trade. A deficient trade policy can have many unintended consequences, and policies based on fallacies and misconceptions can be a significant cause of diminished economic well-being. Taking a protectionist stand is certainly a policy that threatens American prosperity.
(Un)-Challenging the Status Quo
The administration continues the challenge the status quo within the international sphere by associating the trade deficit with economic failure. The only problem with this assessment is that trade is mutually beneficial regardless of the balance of trade. The balance of trade does not measure economic success. It simply indicates that we have the ability to buy more from the rest of the world than what the rest of the world can buy in return.
Americans do buy more from abroad than what is sold in return. However, those dollars Americans spend abroad will return in the form of capital, which does sustain jobs, investment, and economic well-being.
According to President Trump, this process should be artificially reversed through protection. Foreign direct investment to our president is considered a leakage and by artificially trying to contract the trade deficit through protectionism, he is diminishing the wealth Americans receive from it. Shouldn’t trade policy or any other policy proposal for that matter seek to minimize the degree to which government picks and chooses winners and losers?
If our administration really wants Americans to prosper, the U.S. should unilaterally reduce every protective barrier and have total unfettered free trade.
Unintentional Domestic Sanctions
When the U.S. wants to sanction other countries, doesn’t it limit the amount of goods and services it sends abroad, which punitively prevents other countries from enjoying them? Why should the U.S. do to its citizens in times of peace, what they do to their adversaries in times of trouble. When we impose tariffs on competition, that is precisely what we do to our own citizens by forcing them to pay a higher price.
Open Up the Markets
Open up U.S. markets and make them as free and independent from government as possible. This is what will allow Americans to take advantage of the very best products in the world, at the best prices in the world, among the best investors in the world. 95% of the world’s population lives outside of the U.S. Allowing the very best companies around the world to access the U.S. market will force the very best level of performance, in and among businesses competing here domestically. The effect would be forcing firms to manufacture as cheaply and efficiently as possible. Those who can compete will move forward and produce the highest quality products, and those who can’t will have to restructure so that they can compete, instead of depending on protection, which produces drag on the U.S. economy.
How can that not benefit Americans?
The capital surplus that returns from Americans buying abroad allows firms and corporations to use less of their own resources and more resources from abroad. Using the most efficient factors of production means producing more with less. This is the epitome of efficiency and the precondition of a higher living standard.
Another fallacy in the president’s approach is the heavy handed bureaucratic policy of buy American / hire American that chokes productivity and output. What is the effect of forcing companies to manufacture and produce domestically? Pressuring companies to manufacture domestically will force companies to pay higher input cost. When companies can’t leverage cost to output, they will manufacture less. When they make less, they will have to charge a higher price to compensate for less output. Consumers are now forced to pay more because of less productivity. When consumers pay more, they will buy less. Firms, who face higher cost, enjoy lower profits, and lower profits mean lower employment. Therefore, these so-called patriotic measures that garner so much support have all sorts of unintended consequences. As much as these policies harbor patriotic intent, policy should not be measured by intent, but rather by result.
Greatness has never occurred from shielding American firms from competition. The same argument that can be made from reducing poverty because it keeps people in a perpetual mode of dependency, can be made about protecting firms and corporations from competition, as it will too keep them from achieving their very best potential.
True Competition
Let us open our market to the world. The very best way to eliminate crony capitalism, corporate welfare, and the ill-effects of monopolies (all of the things people perceive as the negative consequences of the market) is to have unfettered total free trade. I’m pro-market, not necessarily pro-business. There is a difference. I don’t believe that government should interfere with business in much the same way that I don’t believe business should influence government. They both produce negative unintended consequences.
