By: James Sherk

7 March 2004 Why Free Trade Benifits Everyone: An argument in defense of free trade.

As the 2004 election approaches, politicians are again denouncing free trade in order to win votes. The presumptive Democratic nominee, liberal Sen. John Kerry, once supported NAFTA, but now regularly blames free trade for America's economic ills. President Bush, who campaigned as a free trader, imposed substantial tariffs on steel once he took office. Meanwhile, politicians of both parties regularly criticize American businesses for "outsourcing" - lowering costs by producing part of their product overseas. How should Christians approach this issue?

Certainly Christians do not have a moral obligation to try to use the government to help the poor. Christ commanded individual believers to use their gifts to help the less fortunate, as acts of love and service towards God and as a witness to His love. Nowhere does God imply that the secular state can fulfill these duties, or that His servants should attempt to use the government to do so. Nonetheless, Christians should understand the effects that government policies have on the economy, and should seriously consider the implications of supporting programs that impoverish the entire economy, while disproportionately harming the poor.

Trade restrictions are such a policy. Many Christians, sincerely concerned about the welfare of both American and foreign workers, wish to limit international trade to prevent the "exploitation" of foreign workers and prevent the loss of American jobs. With the best of intentions, these Christians support policies that, if implemented, would condemn millions around the world to abject poverty, while destroying jobs and lowering living standards in the United States.

While economists frequently disagree, the one issue that virtually every professional economist agrees on is the economic benefits of free trade. For more than one hundred and fifty years, economists of all stripes have been united by their belief that free trade improves the economy, and with good reason. Theoretically and empirically, the evidence shows that free trade creates jobs, economic growth, and prosperity.

Advocates of trade restrictions claim that permitting cheaper foreign imports, which put less efficient American firms out of business, cost American jobs while unfairly exploiting foreign workers who earn only a fraction of what American workers do. But these arguments are incomplete, committing what economists refer to as the "broken window" fallacy.

The term comes from the story in 19th century France of a baker whose store's windows were broken by vandals. As townspeople gathered to view the spectacle, they observed that, while it would cost the baker personally to repair the damage, it would benefit the town as a whole, since he would have to buy glass and hire laborers to repair the damage, creating more employment and income in the town. This observation, however, looks only at the visible effects of the broken window. It ignores the unseen effect, the fact that the baker cannot now use that money to do something else, such as purchase a pair of shoes, which would also create jobs and provide income in the town. Had the window not been broken, the baker could have had both it and a new pair of shoes, but now he must make do with only the repaired window, leaving the shoemaker without a customer. While the vandalism has left the glazier better off, it has left both the baker and the shoemaker worse off, and it is ridiculous to posit that, by extension, the villagers could achieve wealth and prosperity by breaking every window in the town.

The argument for trade restrictions, however, is essentially the same argument that the villagers made. It looks only at the immediately apparent effects of free trade - those American firms that go bankrupt because they are less efficient than foreign businesses - and ignores the less visible, but no less real, jobs and prosperity that result from free trade. Obviously, when foreign firms sell in the United States, they earn American dollars, which are only useful for buying American products, creating jobs for Americans who work in export industries. However, the effects of free trade do not end there.

Free trade reduces, in some cases drastically, the prices of many goods and services in the United States. This leaves more money in the pockets of American consumers, and allows them to save and spend more. These additional expenditures and investment in the economy create more jobs and wealth for everyone. Trade restrictions force Americans to spend more resources than necessary to obtain some good or service, leaving fewer resources to obtain everything else, like the baker who could not buy new shoes because he had to repair his store's window. Needlessly expensive goods and services only hurt America. The choice isn't between cheap steel and jobs for steelworkers. It is between cheap steel, more food, clothing, shelter, and savings for all Americans, along with more jobs in every sector of the economy besides steel, and more expensive steel that creates more jobs for steelworkers.

Free trade does more than create jobs and lower costs in America; it also provides a path out of poverty for millions in the third world. Opponents of free trade often point out that free trade forces American workers to compete with "exploited" foreigners only earning a few dollars a day. While many foreign workers work for a small fraction of what Americans do, providing them with the opportunity to work for multi-national corporations hardly constitutes "exploitation" since it provides them with a much higher standard of living than they could achieve anywhere else. The poor in America still earn upwards of ten to twelve thousand dollars a year, and have generous state and federal benefit programs that provide them with food, shelter, and medical care. This tends to distort American's understanding of true poverty. In much of the world, the poor must literally struggle to survive, with standards of living far below anything imaginable in te United States.

The reliably liberal New York Times columnist Nicholas Kristof explains that, in Cambodia, the poor eke out their living by scavenging, seven days a week, through garbage dumps, hunting for bits of metal and scraps of edible food, all the while surrounded by swarms of insects. (Nicholas Kristof, "Inviting All Democrats," Jan. 14th, 2004. The New York Times.) This brings them an average income of $0.75 a day. To many in Cambodia, the opportunity to work inside, in a factory, only six days a week, and earning two dollars a day, is a dream come true. Indeed, Cambodians are so eager to be "exploited" in sweatshops that it is usual for new workers to bribe factory managers with up to a month's salary in order to get hired. Two dollars a day is a pittance for an American worker, but in many foreign companies it provides for the essentials of life.

Free trade and outsourcing lower prices and provide jobs for Americans and are the only path out of poverty for many third world workers. Christians do not have an obligation to attempt to use the government to help the less fortunate - that is an individual, not collective, responsibility - but they should understand that economics unambiguously demonstrates that free trade invariably helps the economy and raises living standards both in America and abroad.