Dr. Russell is Professor of Economics at Rockford College and Chairman of the Department of Economics and Business Administration. This article is from his column of November 19, 1961, in the Rockford [Illinois] Morning Star.
Rep. Noah M. Mason of Illinois, top Republican on the House Ways and Means Committee, is now predicting that the tariffs in the United States will definitely not be lowered and will probably be raised. "If the administration tries to continue the Reciprocal Trade Act in its present form, there will be a devil of a fight," he states.
Mason claims that most congressmen are now opposed to our 27-year-old policy of lowering tariffs for nations that lower them for us, and that this increasing opposition could easily result in the defeat of the act when it comes up for renewal next June.
It so happens that Representative Mason has always been one of my favorite congressmen. My only real disagreement with his voting record is on the issue of tariffs. In defense of his campaign for higher tariffs, he generally advances the familiar arguments of protecting American jobs and industries against "cheap foreign labor."
He is correct in his observation that if it were not for government protection against foreign competition, many persons in the United States would lose their jobs, and a considerable number of American companies would be forced out of business. But Mason completely ignores the American consumer and the multitude of jobs and industries that depend on foreign trade.
He dramatizes the jobs and industries that are threatened by the $16 billion worth of yearly imports into the United States. But he just ignores the far larger number of jobs and industries that are involved in our $20 billion worth of exports—automotive and electric equipment, steel mill products, machine tools, coal and cotton, petroleum products, and many others. Comparatively speaking, prohibitive tariffs would destroy 20 American jobs and companies for every 16 saved. And worse still, the companies that would be destroyed by this policy are our most efficient ones that pay the highest wages. Apparently, our high tariff congressmen completely ignore the obvious fact that foreigners cannot continue to buy from us unless they are permitted to sell to us.
Actually, tariffs never protect jobs for the nation as a whole. But tariffs do always increase prices for consumers throughout the country. Today, you and I are paying higher prices for clothing and watches (and many other items) because the American manufacturers of those products are protected by tariffs. I am just as opposed to protection and subsidies for industry as I am opposed to protection and subsidies for farmers, unions, and professional men. I cannot logically and morally be for one and against the other.
Perhaps our protectionists could understand this issue better if they would consider the economic effects in Illinois of a tariff against all products from our other 49 states. Here is how it would work.
We do not have, for example, an automobile industry in our state. The reason is simple—we can buy cars cheaper from Detroit and, in effect, pay for them with machine tools that we produce cheaper than they do. We could easily create an automobile industry in Illinois, however, if the state were permitted to put a 25 per cent tariff against "imported" cars.
With that amount of government protection (really a concealed subsidy), capital would flow from our machine tool industry into our new automobile industry that could then offer the owners of the capital a higher return on their money. That development would immediately increase costs (and prices) for machine tools because those companies, in turn, would then have to pay a higher price to hold and attract the needed capital. And for a while at least, the machine tool companies would also have to pay higher prices for labor because the new automobile industry would bid especially high for the services of those skilled mechanics.
Thus, even if Detroit didn’t retaliate with tariffs against our machine tools, the higher prices would automatically mean that fewer would be sold. That, in turn, would mean fewer jobs in the machine tool industry. Meanwhile, you and I would also have to pay $500 more for a car. In turn, that added cost would mean that you and I would have $500 less to spend for housing, education, entertainment, and so on. Thus those industries would also have to lay off workers. And since Illinois would soon run out of "unemployment benefits," those people would have no choice but to scratch out a living as best they could. Under those circumstances, obviously it wouldn’t be much. But unquestionably, many new jobs would have been created in our new automobile industry.
After that arrangement had continued for 10 years or so, it would be almost impossible to stop it; the protectionist politicians would quickly and correctly point out that all the jobs in our high cost Illinois automobile industry would be wiped out overnight if we removed their protection from competition and permitted those "cheap cars from Detroit" to be sold in our local markets.
The Economic Facts About Competition and Trade
That is always the final result of government protection and subsidies and interference with the free market economy. The absence of tariffs among our 50 states explains better than anything else why our level of living is so high. It is due almost entirely to competition, natural specialization, survival of the most efficient managers and companies, and the free movement of labor and capital from one industry and one section of the nation to any other industry and section.
Those economic facts about competition and trade also explain why the nations of Europe are now establishing a tariff-free Common Market. The advocates of that project are well aware that the ultimate result will be better jobs at higher pay for all employees, lower prices for all consumers, and even higher profits for the owners who are capable of operating in a free and competitive economy.
For both economic and political reasons, the United States should provide the leadership for lower (not higher) tariffs among nations.
Where does anyone get the idea that he is entitled to the production of someone else? Under what moral or economic conception can one base a claim upon his neighbors? Inducements of something for nothing encouraged by politicians to get votes and voted for by those not economically or morally informed can only turn into a morally defective procedure which is economically unsound and which will lead to financial chaos.
Ralph E. Lyne, Taylor, Michigan