Bohanon: Trump and the Trade Question

February 8, 2016

by Cecil Bohanon

Iowa seemed to knock the wind out of Donald Trump’s sails. At the time of this writing it isn’t clear what New Hampshire will do to the campaign of the populist New York billionaire. Here is my case against Trump.

Cecil owns a nice piece of wood he would like to have fashioned into bookends. Mike is a talented carpenter. Cecil offers Mike $300 to make the bookends. Mike agrees. The bookends are delivered and the bill is paid. Both Mike and Cecil are better off.

The proposition, that a freely agreed on exchange makes both parties better off, is something that most folks understand. I am sure Mr. Trump understands it. Yet he seems to be telling us that it does not apply if the trade is between Cecil and Minghao or Cecil and Miguel.

Candidate Trump tells us we lose when we buy goods from China, that China is stealing from us. Really? If American are worse off why do they continue to trade? Mr. Trump’s position is akin to arguing that while the laws of motion and gravity hold in the United States among Americans, they don’t hold when Americans interact with Chinese or Mexicans.

Of course, what Mr. Trump is channeling is the following: Quite a few Minghaos and Miguels have offered to make Cecil bookends for $100, and the Cecils have taken them up on their offer. This has been irritating to the Mikes who used to sell bookends for $300. Mike’s income is lower. That “Mike’s loss is Cecil’s gain” is of little consolation to Mike. If we change the scenario and new domestic technology had been the culprit, the story remains unchanged: Mike is worse off but bookend consumers’ gain. Imports, immigrants or new technology all represent replacing high-cost production with lower-cost production. And, indeed, the history of the last 200 years has been this story repeating itself hundreds if not thousands of times.

Mechanical looms replaced hand looms. Irish labor competed with Yankee labor. Mass-produced hardware ended employment for local blacksmiths. Chinese labor competed with Irish labor. Railroad service and Sears and Roebuck’s reduced the profits of the local dry goods store but enhanced the well-being of those on the frontier. Home refrigerators left icemen unemployed. The demand for telegraph boys was diminished by the telephone and finally killed off by email. Typewriter repairmen were made obsolete by personal computers. And the list goes on.

Can anyone think of any improvement in living standards that made everyone better off? If so please share. I’d love to find one, but I think the point is made: Forces that enhance the general living standard inevitably hurt somebody.

The economist Joseph Schumpeter coined the phrase for all this: creative destruction. This is an apt metaphor because it emphasizes that changes that enhance living standard for the many also impose losses, sometimes catastrophic losses on others. I think it is important that we free-traders not oversell the gains from expanded international commerce, open immigration or technical innovation. Folks who oppose these changes do not do so because they are “stupid” or even “greedy.” In their neck of the woods, the horror story of free trade is true. I can see it in neighborhoods in my former auto parts town.

Classical liberals, progressives and conservatives disagree on what to do about those who lose from creative destruction. But just as it is unreasonable to ignore the losses from creative destruction, it is absurd to ignore its gains and this is what Mr. Trump is calling on us to do.

Cecil Bohanon, Ph.D., an adjunct scholar of the Indiana Policy Review Foundation, is a professor of economics and Ball State University.



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