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competitive disadvantage. But dumping will mean lower prices for U.S. consumers and a
net gain to the U.S. economy. The U.S. will be obtaining the goods at a lower cost than the
cost of producing the goods in the U.S.
b. Foreign governments sometimes subsidize exports, allowing the exports to be sold at a
lower price. This puts U.S. producers at a competitive disadvantage. But, as with dumping,
foreign subsidies for exports will mean lower prices for U.S. consumers and a net gain to
the U.S. economy.
4. Low foreign wages argument. This argument says that American producers cannot compete
with foreign producers because American wages are high and foreign wages are low. If
domestic producers are not protected from imports, American wages will be driven down to
low levels.
Example 9: If textile manufacturers in North Carolina have to compete with textile manufacturers
in Bangladesh, textile workers in North Carolina will see their wages fall.
It is true that wages for workers who are in direct competition with imports may be driven down
by the competition. But high wages overall are made possible by high productivity. Restricting
trade reduces a nation’s overall productivity. Free international trade increases a nation’s
productivity and makes high wages overall possible.
5. Saving domestic jobs argument. Restricting imports can save specific domestic jobs. But
protecting noncompetitive jobs interferes with the allocation of labor to its most productive use.
And the cost to save the jobs will be greater than what the jobs are worth.
Example 10: Restrictions on imported sugar impose a net loss on the U.S. economy of about $1
billion per year and save about 2,000 U.S. jobs, for an annual cost per job saved of about
$500,000. (Information on the net loss is from research by Michael Wohlgenant. Information on
the number of jobs saved is from the International Trade Commission.)
Also remember from Chapter 4 that technological advance destroys jobs. International trade is
a type of technological advance and thus destroys jobs. But job destruction is good. Job
destruction frees up labor for new types of production. The destruction of jobs allows the newly
unemployed labor to be re-allocated to more valuable production.
Example 11: In the last forty years, imports have nearly quadrupled as a portion of the U.S.
economy. Yet the nonrecessionary unemployment rate in the U.S. today is similar to what it was
forty years ago.
The Movement toward Freer Trade
Nations that practice relatively free international trade generally experience more economic
growth than nations that restrict trade.
Example 12: According to the “Economic Freedom of the World, 2013 Annual Report”, the
twenty-five percent of nations with the most free economies had a per capita Real GDP over 8
times as high as the twenty-five percent of nations with the least free economies.
In recent years, there has been a movement toward freer international trade. Most nations have
been reducing tariff rates and easing quotas on imports. As a result, international trade has been
a growing part of the world economy.
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Example 13: According to the World Bank, the mean tariff rate worldwide was decreased from
26.3 percent in 1986 to 6.8 percent in 2012. Between 1973 and 2012, exports as a share of
worldwide GDP increased from 12% to 25%.
16 - 7 International Trade