The editor’s opinion from Marketplace, Northeast Wisconsin’s business magazine. (Obligatory disclaimer: Most hyperlinks go to outside sites, and we’re not responsible for their content. And like fresh watermelon, peaches, pineapple, grapefruit, tomatoes and sweet corn, hyperlinks can go bad after a while.)

April 16, 2008

Can we export Obama and Clinton?

The Wisconsin Taxpayers Alliance reports that Wisconsin exports increased 11.8 percent between 2006 and 2007 to a record $19.2 billion. Wisconsin is now the 19th biggest exporter in the U.S., up from 21st in 2006. The top categories: Canada is our largest export market ($5.8 billion), China is the fastest growing export market (up 35.4 percent), and industrial machinery is our largest export commodity ($6.2 billion, up 11.8 percent).

The reality of free trade’s benefits specifically to Wisconsin stands in stark contrast to the anti-free-trade positions of Democrats Barack Obama and Hillary Clinton. (Who, if their positions are based on ignorance, should click HERE for the economic education they should have gotten years ago.) Their stance is at least consistent with their positions of what The Economist calls “political miserabilism,” but things would be immeasurably worse off for everyone if a President Obama or another President Clinton succeed in restricting trade.

If there is one position about which there is absolutely no rational opposing rationale, it is free trade. Free trade only benefits consumers, manufacturers, farmers more than farm subsidies do, and the environment — in other words, everyone, including our trading partners. Does that mean that no individual or business is ever harmed by free trade? That depends on what you consider “harm” — individual businesses or workers may not be able to compete, but that’s merely what economist Adam Smith identified in 1776:
“It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy. … 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.”

“Suppose the Japanese could manufacture everything more cheaply than we can — which is certainly not true,” writes Princeton University Prof. Alan Blinder. “Even in this worst-case scenario, there will of necessity be some industries in which Japan has an overwhelming cost advantage (say, televisions) and others in which its cost advantage is slight (say, chemicals). Under free trade the United States will produce most of the chemicals, Japan will produce most of the TVs, and the two nations will trade. The two countries, taken together, will get both products cheaper than if each produced them at home to meet all of its domestic needs. And what is also important, workers in both countries will have jobs. …

“If there were only one industry and occupation in which people could work, then free trade would indeed force American wages close to Japanese levels if Japanese workers were as good as Americans (and who doubts that?). But modern economies are composed of many industries and occupations. If America concentrates its employment where it does best, there is no reason why American wages cannot remain far above Japanese wages for a long time — even though the two nations trade freely. A country’s wage level depends fundamentally on the productivity of its labor force, not on its trade policy. As long as American workers remain more skilled and better educated, work with more capital, and use superior technology, they will continue to earn higher wages than their Japanese counterparts. If and when these advantages end, the wage gap will disappear. Trade is a mere detail that helps ensure that American labor is employed where, in Adam Smith’s phrase, it has some advantage.

John McCain, whatever his faults on other issues, has been a consistent free trader throughout his political career. I would say that that statement doesn’t apply to Obama or Clinton, except that making that statement requires you to separate what they’re saying on the campaign trail from what they either have done before or are doing now. An Obama advisor recently told Canadian officials to not worry about Obama’s criticisms of the North American Free Trade Agreement. Clinton has been telling people she opposed NAFTA since her husband, who pushed NAFTA, was president, but the record shows something else. columnist Daniel Gross terms Clinton’s criticisms of Obama’s trade positions
a “triangulator calling a three-sided figure a triangle.”

Conventional wisdom says that Clinton’s and Obama’s trade positions, in Gross’ words, merely reflect the reality that
“viable Democratic candidates for national office will (1) make negative comments about free-trade deals while campaigning in a state where hundreds of thousands of blue-collar manufacturing jobs have been lost and yet (2) be committed to free trade should they happen to win.”

Obama’s campaign slogan is “Change you can believe in.” What exactly can we believe from Obama? (That question need not be asked about Hillary Clinton, who, independent of her issues with honesty, should research her husband’s positions on trade and, for that matter, the positions of the Doyle administration.)

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