In His Confusion, Wilbur Ross Seeks Anything But Free Trade

Maybe we should set up a GoFundMe site to raise money to buy Commerce Secretary Wilbur Ross an introductory book on economics. Based on his speech this week about trade between the United States and China, he clearly needs it.

Speaking to the National Press Club, Ross asked: “If their surplus with us has been good for China, how can trade deficits with them not be bad for us?” The answer can be found in Economics 101. It is simplistic and naive to consider trade surpluses to be “good,” and trade “deficits” to be bad. Growing a robust economy is not a matter of turning imports into exports. Both are vital.

In fact, the opportunity to import helps achieve improved productivity – and prosperity – more than the opportunity to export. Importing broadens choice, for both final consumers and intermediate producers. It widens the circle of suppliers available to domestic producers, bringing down price and improving service. It facilitates comparative advantage, allowing enhanced pursuit of specialization and excellence. And it allows for knowledge and technology transfer, such as when U.S. manufacturers embraced the Japanese strategy of lean production, or when the steel mini-mills imported efficiencies in steel production from other countries. In other words, the opportunity to import is vital to competition and all of the benefits that brings.

Rather than the notion that imports are bad and exports are good, the Administration should recognize that both are good – in fact, invaluable to a dynamic economy.

Ross does concede there are times when importing makes sense – such as when it allows the United States to obtain a resource that Americans do not produce. But trade is not really a matter of countries buying from or selling to each other. It is a matter of individuals and companies trading with each other. When we trade, we're not just looking for products we don’t have or don’t have enough of. We are trying to promote excellence, to make it possible for every consumer to get the best possible value at the lowest possible price. We are trying to make it possible for as many people as possible to engage in wealth creation as efficiently as possible – because it is the widest possible division of labor that raises living standards for all of us.

We are long past the days of Marco Polo, when trade was a matter of exchanging one country’s silk for another’s spices. When we trade today, we are not trying to fill gaps in our economy. We are seeking to maximize competition, and ensure maximum efficiency. The Theory of Comparative Advantage makes as much sense as it did when David Ricardo explained it in 1815: By trading with others, we are able to concentrate on the things we do best.

The value of free trade – and the futility of seeking trade surpluses over trade deficits – has only become clearer in recent years with the advent of cross-border supply chains. Sure, the U.S. could try to hold on to every job in the production cycle. But all that would do is raise costs, and render all economic participants less productive. By importing from developing countries, we are in effect hiring people at a more efficient cost than we could at home. The result is economic progress.

You may be perfectly capable of dusting your own tables and washing your own floors, but that doesn’t stop you from hiring a cleaning person if your hourly wage is significantly higher than the hourly wage you would have to pay him or her.

Rather than looking at imports as money exiting an economy, we should recognize it as value entering. Unfortunately, many look back fondly to a time when almost all goods sold in the United States were made in the United States. It is conceivable that we could resurrect that world – but only if we are willing to give up the iPhones, laptops, medical technologies and all of the other modern conveniences that trade has made possible.
We are able to maintain a 21st-century lifestyle only because we pursue a 21-century economy. Bringing back the 1970s economy would also entail bringing back the 1970s lifestyle that came with it.

Secretary Ross is not advocating free trade when he suggests that imports hurt an economy and are only needed to obtain some things we wouldn’t be able to produce for ourselves. Rather, what he is advocating is mercantilism. The world shifted away from that towards genuine free trade a couple of centuries ago – and has prospered ever since.