One of the many recurring myths about free trade, a country, especially a high-wage country like the United States, may one day find itself as a high-value producer. Per Good and service and then … what?
Recently, a reporter who is in no way hostile to the free market emailed me after reading my previous AIER article that “when they [foreigners] Not only created [micro]Chips are cheaper than us but do we make potato chips and everything else cheaper than us? I responded to my blog, Cafe Hayek with an explanation that this result is literally impossible. Not merely unimaginable or impossible. It’s impossible. This impossibility is confirmed by the principle of comparative advantage.
But more can be said, or, rather, asked. What if the impossible happens and we Americans wake up one morning to find that there is literally no good or service that we foreigners can produce at that low cost to produce that good or service? The most obvious consequence would be that since no foreigner would agree to meet the cost of supplying an American producer to an American exporter, no American would want to trade with a foreigner. Even from the point of view of the protectionists, then, there will be no need for tariffs, because there will be nothing to pay.
Yet I get the idea from a lot of people who have been asking for years, ‘What if we Americans find that foreigners can produce Everything At a lower cost than we can afford? ‘ These people are concerned that the wages of American workers will be reduced due to competition from imports. Of course, however, Americans’ wages cannot be reduced by imports unless the Americans import something.
A related concern, it seems, is that many people worry that America is on its way to becoming a high-value producer of everything, that we Americans, if our leaders stubbornly and arrogantly allow us to trade freely with our foreigners, will lose almost all production opportunities. Foreigners will supply us with almost everything we eat. And while foreigners provide almost all products and services that meet our needs and wants, we Americans will be left with exclusive business and jobs through which we work for each other, in poverty wages, just a little personal service that will not be worthless to foreigners. While traveling here to perform. We would flip each other’s hamburgers and clean each other’s bathrooms and that’s about it.
But again, foreigners will not supply our products and services to meet any of our needs and wants unless we provide goods and services to meet some needs and demands of foreigners. And the more goods and services we purchase from foreigners to meet our needs and wants, the more foreigners buy goods and services from us to meet their needs and wants. (Despite the fact that the US trade deficit has increased dramatically due to the increase in net foreign investment in the United States, if we help meet the needs of foreigners, the necessary changes will not happen.)
There is a key to getting out of the confusion that traps people who are concerned that the high real wages of Americans prevent us Americans from trading profitably on long journeys with people from poorer countries. The key is to ask Why Are American wages higher than those in poorer countries?
The answer has two parts. The first is that American workers are highly productive, especially in the specific jobs they work in. The second part is that American workers will be almost highly productive in alternative jobs where these workers would otherwise work.
For example, a pharmaceutical scientist is working for Mark in America and receives an annual salary of $ 100,000. We can be sure that the annual cost Merck received from hiring this worker – the annual cost of what this worker produces – is at least $ 100,000. We can also be confident that if this worker works elsewhere the annual output is worth no less than $ 100,000, otherwise Merck, the greedy Big Pharma operation that would have bid this worker. Offering an annual salary of less than $ 100,000 from his alternative employment.
In short, the unusually high wages of American workers reflect the unusually high productivity of American workers. And abnormally high productivity is rarely an economic problem. Yet when politicians and pundits worry that under the free trade policy American workers will be driven to a much lower wage profession because of their high wages, low-wage imports produced by foreigners, these politicians and pundits are really concerned. The thing is that American workers are in some kind of trouble because they are abnormal Productive Compared to foreign workers. But when described in this way, the concern is expressed that it is really nonsense.
Everyone instinctively understands this fact on a personal level. Professional basketball superstar LeBron James doesn’t think his high salary will make him unemployed because the Los Angeles Lakers hire a middle-aged friend off the street who would be thrilled to replace James for a small portion of his current salary. Similarly, a tax accountant who lives across the city from you, and your brother-in-law who is well paid to run a local target store, don’t worry about losing their jobs to the minimum wage teenagers.
For the same reason, American workers who produce what economists call “commercial goods” – generally imported and exported goods – are generally less likely to lose their jobs, despite being paid more than many foreign workers.
I qualify my conclusion with the word “usually” because every worker is here Something Risk of losing his current job due to change in economic situation – change in consumer tastes or improvement of production and distribution strategies. Such a change is an inevitable feature of any economy where the masses enjoy a reasonable expectation of a high and growing standard of living. But the following fact remains: In a market economy, higher wages are a consequence – and – a reflection of higher productivity. And so in contrast to the widespread fears of many protectionists, high-productivity workers have nothing to fear from competing with low-productivity workers.