American consumers often take advantage of attractive bargains offered by producers located outside of the United States. American producers who compete with those foreign producers too often respond by doing what producers have done for centuries – namely, cajole and bribe government officials for protection from consumers.
Of course, the resulting protectionist measures are commonly described as providing not protection from consumers but “protection from imports,” or “protection from foreign producers.” But this language misleads. Imports are lifeless; they don’t act under their own volition. Nor are imports created and offered for sale by non-human forces. The ultimate source of the ‘harm’ that American producers complain of isn’t imports; it isn’t even the foreign producers who offer their wares for sale to Americans. The ultimate source of this ‘harm’ is American consumers. If American consumers choose not to buy imports, no foreign-based producers would spend scarce resources producing goods for sale in America, and no imports would arrive on American shores. American-based producers are ‘harmed’ by imports only because, and insofar as, these goods are chosen and purchased by American consumers.
This matter isn’t one of mere semantics. Saying that imports and foreign producers inflict harm on American workers, or on the American economy, creates the false impression of America being invaded by hostile forces. Yet, in reality, imports are invited by American consumers as a means of improving their lives. To recognize this reality is to recognize that the ultimate target of tariffs and other protectionist measures is not a collection of inanimate objects. Nor is this target a cabal of foreigners seeking to profit at Americans’ expense. The ultimate target of protectionism is fellow citizens peacefully spending their own money. These fellow citizens are treated as enemies whose voluntary actions must be curtailed.
But obviously, demonizing fellow citizens, who do nothing more than peacefully seek to satisfy their legitimate wants in ways they judge most efficacious, is unlikely to work. So the demonization must be of the means that these fellow citizens use to satisfy their wants. When these means include the efforts of foreigners, demagoguery is too easy. “Oh look!” cries the protectionist. “The sale of imports here in America destroys some American jobs and businesses. We’re being harmed by foreigners stealing our markets! For the good of our country, stop them!”
No such demagogic outburst would work if it were more honestly expressed as “Oh look! Our fellow citizens spending their own money as they choose destroys some American jobs and businesses. We’re being harmed by fellow citizens’ peacefully satisfying their wants! For the good of our country, stop them!”
In the previous paragraph I write “more honestly” rather than simply “honestly.” The reason is that the destruction of particular jobs and businesses caused by voluntary changes in the ways that consumers spend their money does not harm the economy. Quite the opposite. Our modern prosperity exists only insofar as consumers are free to spend their money in whatever peaceful ways they choose. It is this freedom that enables consumers to reveal which particular goods and services they want eagerly enough to justify being produced. The further this freedom is restricted, the more meager is the knowledge about how resources can best be used. Such restrictions cause this knowledge to become narrower and blurrier. Resource waste intensifies. Some human wants that could be satisfied remain unsatisfied.
The freedom of consumers to spend their money as they peacefully choose is called “consumer sovereignty.” It’s an indispensable feature of a prosperous economy.
You exercise your consumer sovereignty when you choose to buy salmon for dinner rather than pork or chicken or tofu. I exercise my consumer sovereignty when I continue to buy my favorite brands of breakfast cereal and beer – and when, for whatever reason, I choose to switch to other brands.
Along with the freedom of entrepreneurs to compete for consumer patronage, consumer sovereignty is one of the two fuels of competition. Indeed, consumer sovereignty is the more important of the two. Unless consumers are free to reject products that they once bought in order to purchase new or different products, entrepreneurs will have no incentive to compete against each other by lowering prices, seeking greater efficiencies in production, or making better mousetraps and otherwise improving their product offerings.
But insofar as consumers do have sovereignty, entrepreneurs are driven by their desire for profit to outdo each other. Burger King tries to make its menu and its prices more attractive than those offered by Wendy’s; Wendy’s responds by trying to offer tastier and lower-priced food than consumers find at Burger King. This ongoing rivalry works to consumers’ benefit. Consumer sovereignty means that entrepreneurs can profit only by pleasing consumers.
Consumer sovereignty reflects the fact that the ultimate measure of any economy’s success is how well it provides for people’s needs and desires – how much access it affords to the particular combination of goods and services (including preferences for leisure, location, and occupations) that each of us uniquely desires in order to make his or her life as rich and as meaningful as possible.
Opponents of free trade are quick to reply, “Yes! – and that’s why free trade is bad. It destroys jobs and, thus, denies people the income they need to buy the things they want.” This reply has an air of superficial plausibility, which is why so many people who are harmed by protectionism nevertheless support it. But scientific truth in this matter, as in all other matters, is not determined by popular perceptions.
The very jobs that Americans today think should be protected from foreign trade are jobs that were either created by foreign trade or made more attractive by foreign trade.
Take steel. Much of the capital that built America’s railroads in the 19th century came from foreigners, especially the British. Foreigners directly earned some of the dollars that they invested in American railroads by selling goods to Americans. Other dollars were gotten when foreign investors exchanged their own currencies (say, British pounds) for US dollars. But these other dollars themselves were earned by other foreigners through their successful efforts to sell their wares to willing American buyers.
Foreign investment in US railroads, in turn, created a huge demand for steel, especially for the tens of thousands of miles of rails that were laid. Without this demand for steel rails, the American steel industry would not have developed when and as it did. Without foreign investment, the demand for rails would have been much lower; and without trade, there would have been no foreign investment. The same can be said for countless other industries and jobs throughout America.
Yet even for those rare jobs that have no direct connection with trade, the wages earned by their workers are higher because of trade. By keeping prices down, and outputs and product varieties up, trade makes every dollar earned go further. This fact means that the attractiveness today of any particular job – even one that does not depend directly upon sales to foreigners or on inputs or investments supplied by foreigners – is raised by trade.
Put differently, among the very reasons that losing a particular job to trade is so traumatic is that that job is made so attractive by trade. Of course, each of us would love to have our own job guaranteed by government diktat while we simultaneously exercise the consumer sovereignty that enables us to enjoy a high standard of living. But to guarantee your job requires a sacrifice of some of your neighbor’s consumer sovereignty – just as a policy that guarantees your neighbor his job requires a sacrifice of some of your consumer sovereignty. The only ethically acceptable policy – and the only one that ensures long-run prosperity for all – is a policy in which no one’s consumer sovereignty is ever sacrificed. Such a policy is one of unilateral free trade.
