Exactly 200 years ago, Ricardo published "On the Principles of Political Economy and Taxation," explaining the doctrine of comparative advantage. Paul Samuelson, a leading 20th-century economist, cited this doctrine when challenged to name a social-science proposition that is both true and not obvious. British journalist Matt Ridley calls Ricardo's insight "a thoroughly counterintuitive idea" that "takes Adam Smith's division of labour one step further." It explains why free trade benefits every country, even relatively advanced England trading cloth for wine from relatively undeveloped Portugal, which has a comparative advantage making that product.
Seven years after Ricardo's book appeared, Thomas Babington Macaulay wrote, "Free trade, one of the greatest blessings which a government can confer on a people, is in almost every country unpopular." It certainly is with the Trump administration, which bristles with chest-thumping anti-cosmopolitans who are too flinty to be bamboozled by foreigners such as Ricardo and others who deny that trade is a zero-sum game.
Foreigners, however, have their uses. After the president boasted that the Dow surpassing the 22,000 mark was evidence of America's resurgent greatness, the Wall Street Journal rather impertinently noted this: Boeing, whose shares have gained 50 percent this year and which accounted for 563 of the more than 2,000 points the Dow had gained this year en route to 22,000, makes about 60 percent of its sales overseas. Boeing has a backlog of orders for 5,705 planes, 75 percent going outside North America. For Apple, the second-biggest contributor (283 points) to this year's Dow gain at that point, foreign sales are two-thirds of its total sales. Foreign sales are also two-thirds of the sales of McDonald's, the third-biggest contributor (239 points).
Mark Perry of the American Enterprise Institute says that in the past 20 years the inflation-adjusted value of U.S. manufacturing output has increased 40 percent even though — actually, partly because — U.S. factory employment decreased 5.1 million jobs (29 percent). Manufacturing's share of gross domestic product is almost unchanged since 1960. "US manufacturing output was near a record high last year at $1.91 trillion, just slightly below the 2007 level of $1.92 trillion, and will likely reach a new record high later this year," Perry writes. That record will be reached with about the same level of factory workers (fewer than 12.5 million) as in the early 1940s, when the U.S. population was about 135 million. Increased productivity is the reason there can be quadrupled output from the same number of workers. According to one study, 88 percent of manufacturing job losses are the result of improved productivity, not "rapacious" Chinese.
But those Democrats who think government should fine-tune everything are natural protectionists (Sen. Charles E. Schumer (N.Y.): "They're rapacious, the Chinese") and probably think President Trump is too fainthearted because he is not protecting Americans from competition from Americans. This neglect might be changing, thanks to West Virginia's Gov. Jim Justice.
It was beguilingly transactional — no nonsense about principles — when Justice recently had his road-to-Damascus moment. Elected as a Democrat nine months ago, Justice, a billionaire from the coal industry, announced at a Trump rally that he had discovered that he is a Republican. Almost simultaneously, he asked for a $4.5 billion subsidy for the coal industry: Taxpayers everywhere should pay eastern utilities $15 for every ton of central or northern Appalachian coal they burn. Naturally, Justice said this is necessary for "national security," the hitherto neglected menace being this:
Competition from more productive American mines and, even worse, from U.S. fracking (too much inexpensive oil and natural gas) is endangering America by threatening the "survivability" of its eastern coal fields, potentially putting the country "at risk beyond belief." Suppose, Justice says, terrorists disrupted the eastern power grid and there were no abundant supplies of eastern coal? (He did not explain how the coal would fix the grid.) So, channeling George Orwell, Justice says the subsidy is not a subsidy, it is a "homeland security incentive."
Trump surely will make a similar claim when he proposes to tax Americans (they will pay all tariffs) who jeopardize U.S. security by buying American refrigerators made with steel imports that delight the United States' circling enemies by putting domestic steel mills "at risk." Anyone who cannot make a similar argument against imports of Greek yogurt — "food security equals national security" — is a novice protectionist.
Read more on this topic: