All Commentary
Friday, July 1, 1994

Business in the Global Community

Economic Nationalism Breeds Conflict

Dr. McGee teaches at Seton Hall University. He is co-compiler, with Bettina Bien Greaves, of Mises: An Annotated Bibliography (FEE, 1993).

Economic nationalism is on the rise. Hardly a day passes without an article or two about the disharmony that trade causes. French farmers insist they should be protected from foreign fruits and vegetables and ask for a special GATT provision to protect themselves. The French film industry insists on quotas on American-made films in order to protect French culture. French fishermen rampage through the streets of Marseilles destroying containers of foreign fish, thus violating the property rights of business owners. American sugar interests lobby Congress to give them subsidies so they can charge three or four times the world price for sugar, a policy that destroys the sugar industry in the Caribbean.

Japanese high-tech companies, auto manufacturers, and steel companies are accused of “dumping” their products on our markets. The language takes on sinister tones, as when some domestic producer accuses a foreign producer of “invading” the domestic market with low-priced products. In recent months, our government has been “talking down” the dollar in relation to the yen, making it more expensive to buy any Japanese good. Recent articles have said that the present dollar-yen exchange rate makes it impossible for the average Japanese exporter to make a profit in the United States, which is one reason for the decline in the Japanese economy.

Trade barriers in the United States, such as tariffs, quotas, and anti-dumping laws, make it impossible for Latin American flower growers to sell their products profitably in the United States, giving them the incentive to grow marijuana or opium poppies instead. Textile protectionism in the United States has caused hundreds, if not thousands, of small Asian textile companies to go out of business because of our tariff and anti-dumping policies.

All of these restrictive trade policies reduce social harmony and invite retaliation. Wherever such economic nationalism occurs, it breeds conflict. A policy of free trade can counteract nationalistic tendencies, reduce disharmony, overcome petty prejudices, and raise the standard of living for the vast majority of the world’s population.

Free trade exists only where there are no barriers to voluntary exchange. In a world of tariffs, quotas, “voluntary” restraints, and anti-dumping laws, it cannot be said that free trade exists.

The Benefits of Voluntary Exchange

Voluntary exchange has the effect of breaking down barriers, increasing tolerance, and reducing economic nationalism. It destroys provincialism and replaces parochial attitudes with a more global outlook. Young Iranians who drink Coke and watch American videos (even when their government spews forth anti-American propaganda) can see for themselves that America is not the evil place their leaders say it is.

The invasion of American jeans, videos, and other products played a substantial role in the crumbling of the Berlin Wall and the Iron and Bamboo Curtains. Western television broadcasts and products gave captive nations a realistic look at the West, which made it increasingly difficult for leaders to spread lies about capitalism and the non-Communist world.

One facet of economic nationalism is the belief that doing business with foreigners is somehow unpatriotic, un-American, un-French, or un-whatever. Governments and special interest groups would have us believe that it is better to buy a shoddy, domestically made product at a high price than a lower priced, better quality, foreign product. But consumers, for the most part, reject this line of reasoning. Acting in their own self-interest, consumers buy what they want from whomever they want. Most of them don’t care who made a product or where it was made. They simply want the best goods they can find for the prices they can afford. Free trade allows them to do this.

What is good for individual consumers is good for the country, too. Although it is not usually the intent of consumers to increase the wealth of their country by making purchases, the effect is just that. The purchases they make increase the business volume of the companies that sell them products, thus expanding profits and employment. The fact that some consumers might purchase foreign products instead of domestically made products does not change this result.

The Seen and The Unseen

Protectionists claim that allowing consumers to buy foreign-made products causes unemployment at home. And that is true, to a certain extent. If a consumer is permitted to buy a Japanese car, Detroit loses a sale. If enough customers purchase Japanese cars, Detroit automakers will have to lay off some employees. That is what is seen. But what is not seen is the effect that buying a foreign car has on all other segments of the economy.

If a consumer can save $2,000 by purchasing a Japanese car instead of an American car, he is better off. Not only will he have the car he wants, but also $2,000 to spend on other things. The Japanese auto dealer (who is located in the consumer’s town and who employs local people) also gains from the exchange. The employees who work for the auto dealer will be able to continue working because of the demand for their employer’s product.

Other industries also benefit. If the consumer can save $2,000 by buying a Japanese car, he can spend the extra $2,000 on any number of other things. He can take his family on a vacation, which benefits restaurants, motels, airlines, and so forth. Or he can buy clothes or put on an addition to his home, which benefits local businesses. Even if he puts the $2,000 in the bank, someone benefits because the bank has more funds available to lend to someone else who might want to put an addition on their home or buy an automobile.

The problem is that the purchases he makes with the extra $2,000 are not easy for economists or politicians to see. All they see is jobs being lost in Detroit. They do not see the jobs that are being created in countless other industries because free trade allows consumer resources to flow to the areas they deem to be of highest value to them. Studies done by the Institute for International Economics and others have found that protecting a domestic industry by raising a tariff, implementing a quota, or having a voluntary restraint agreement with some country actually destroys more jobs than it saves. Although some tariff or quota might save 20,000 jobs in the auto industry, it also destroys 30,000 or 40,000 jobs in other industries, or prevents them from coming into existence. Some studies show that the job loss/gain ratio is more than three-to-one, which means that for every 10,000 jobs that are saved because of some protectionist policy, more than 30,000 jobs are lost or never created.

Protectionist policies do not enhance social harmony, they reduce it. Special-interest groups use the force of government to do what they themselves cannot do without committing a crime—rob consumers of a portion of their purchasing power. Free trade does just the opposite. It allows consumers to buy the products of their choice at whatever price they can find in the international marketplace. The spread of trade results in a higher standard of living for the vast majority of the population. As individuals become more familiar with the products of other countries, they tend, over time, to change their opinions of foreigners. Rather than think that their country’s products should be supported at any cost, they begin to hold the view that the origin of a product is not as important as its quality and price. Thus, nationalistic ideas and provincialism take a back seat to rational self-interest.

The best way to support business in the global community is not by protecting or subsidizing various industries, but by abolishing trade barriers that prevent businesses from selling consumers the products they want.

  • Robert W. McGee is an associate professor of accounting at Fayetteville State University. He has had more than 40 years of experience working in a variety of capacities, including public accounting, corporate accounting, tax law, banking, consulting, and education. Clients include the United States Agency for International Development, the World Bank, the African Development Bank, and the Central Intelligence Agency. He has participated in several USAID Accounting Reform programs. He was in charge of assisting the Finance Ministry in Armenia convert the country to International Financial Reporting Standards; in charge of reforming the accounting curriculum at all the major universities in Armenia and Bosnia; drafted the accounting law for Armenia and Bosnia, and reviewed the accounting law for Mozambique; reviewed securities legislation for Turkey; trained government ministry officials in Bulgaria, Rwanda and Tanzania, accountants in Russia, and economists in Ukraine. He has lectured or consulted in more than 30 countries and has earned 13 doctorates from universities in the United States and 4 European countries.