Dave Chappelle is a great comedian. But he may be an even better economist. He certainly understands free trade a lot better than some of the people who are currently in charge of directing U.S. trade policy.
In a recent comedy routine, Chappelle provided a succinct explanation of why it makes more sense for the United States to import some goods from China rather than try to pursue a protectionist trade policy aimed at producing everything domestically.
The Difference Between Wearing and Making Nikes
Chappelle summarized President Trump’s position vis-à-vis China: “I’m gonna go to China, and I’m gonna get these jobs from China and bring ‘em back to America.” Chappelle then interrupted his Trump soliloquy, asking: “For what, so iPhones can be $9,000? Leave that job in China where it belongs … I wanna wear Nikes, I don’t wanna make those things. Stop trying to give us Chinese jobs.”
If we had to make our own iPhones and Nikes, would we be able to afford to buy them? Chappelle’s words of wisdom should be inscribed on plaques to be placed on the wall in the White House, the office of the US Trade Representative, and the Department of Commerce — and the trade ministries of some other countries. The reason people buy imported goods is because they feel they are getting a better deal for their money than if the product was made domestically.
Would it make sense for us all to make our own footwear, assemble our own smartphones, grow our own food, and — for that matter — build our own homes? If we tried to do that, where would we get the time and energy to treat cancer, create new technologies and medications, or give Pilates lessons? If we had to make our own iPhones and Nikes, would we be able to afford to buy them? And what would we have to give up to be able to?
Moreover, by offshoring the assembly of iPhones and Nikes, we actually keep domestic jobs competitive. Most of the value added to an iPhone occurs in the United States — Chinese workers assembling them and adding some of the parts just makes Americans more competitive. Nike employs tens of thousands of people in Vietnam, but the company also employs thousands in metropolitan Portland — jobs that pay better, jobs that can be maintained only by offshoring some of the less complex and lower-paying work.
An Economy Needs More than Exports
Growing an economy is not a matter of turning imports into exports. Robust economies do more of both. The opportunity to import actually helps achieve productivity and prosperity more than the opportunity to export because it does more to broaden choice. Importing widens the circle of potential suppliers competing to meet the needs of intermediate producers. When a country opens its borders to imported goods, it facilitates comparative advantage, importing inputs from countries that are more efficient at making them — and thereby making domestically-produced final products more competitive.
We are able to maintain a 21st-century lifestyle because we pursue a 21st-century economy. On the other hand, countries that have tried to fight reality and produce everything for themselves have paid the price. In which economy would you rather live — North or South Korea? In the early 1970s, both countries had roughly the same GDP per capita. One of the reasons South Korea has raced ahead is that North Korea has pursued autarky. South Korea has become so much wealthier not simply because it exports far more, but because it exports and imports far more. By buying things they need from other countries, they free themselves to do the things they are best at doing. Importing is not a necessary evil; it is a necessary ingredient.
Unfortunately, many look at imports as money leaving an economy instead of value entering it. Many look back fondly to a time when almost all goods sold in the United States were manufactured in the United States. Perhaps we could resurrect that world — but only if we were willing to give up the iPhones, Nikes, laptops, medical technologies, and all of the other modern goods that trade has made possible.
The reason we are able to maintain a 21st-century lifestyle is because we pursue a 21st-century economy. Bringing back the 1970s economy would also entail bringing back the 1970s lifestyle that came with it.
By importing from developing countries, we are in effect hiring people at a cheaper price than we could obtain at home. There is a word for the result — “progress.”
Reprinted from RealClearMarkets.