
I recently mentioned Diana Mutz’s book Winners and Losers: The Psychology of Foreign Trade and was struck by how people think of international trade as a competitive activity. Of course, I really shouldn’t be surprised by this. Over 30 years ago, Paul Krugman’s excellent essay “Competitiveness: A Dangerous Obsession” was published in Foreign Affairs. In it, Krugman laments that so many people think that “the United States and Japan are competitors in the same sense that Coca-Cola competes with Pepsi”, and as an example of this misguided thinking quotes President Bill Clinton as saying that a country is “like a big corporation competing in the global marketplace.”
Recently, co-blogger David Henderson published an article for Hoover asking if he is subsidizing Safeway:
Am I subsidizing Safeway? Why would I ask? Here’s why. My wife and I spend at least $400 a month at Safeway. Safeway doesn’t buy anything from us. So, our monthly trade deficit with Safeway is at least $400. And, in Trump’s view of the world, a trade deficit equals a subsidy. By Trump’s reasoning, yes, I am subsidizing Safeway.
Let me borrow this framing and apply it to competition and trade. My wife and I spend many hundreds of dollars per month at Target on groceries and various household items. Now, here’s the question – in doing this, am I engaging in “competition” with Target? By purchasing things from them, have I become their competitor?
Obviously not – that would be absurd. I am not Target’s competitor, I am Target’s customer. Target is not competing with me – Target competes with HyVee, Lunds & Byerlys, Trader Joes, Amazon, and a variety of other stores for me.
When Americans engage in trade with Canada, those are acts of customers purchasing from producers. It is simply not the case that “America” is “competing” with “Canada” when Americans and Canadians trade with each other, any more than I am competing with Target or Amazon when I trade with them. There is competition for trade, but trade itself is not a competition. It’s mutually beneficial cooperation.
Now, of course, there is an element of international trade that does involve competition – the aforementioned competition for trade. If I want to buy lumber for my construction company, I might buy lumber from an American company or I might buy imported Canadian lumber. As a result, the American lumber company must compete with the Canadian company for me. But this is not a bad thing! After all, domestic trade also involves this same kind of competition.
The benefits of competition don’t stop being benefits when it occurs across national borders. Particular American companies might be unable to compete and lose money and go out of business. This is true, and it can be devastating for those who lose their businesses and jobs. But this is also the case when American companies compete with each other! American companies have gone out of business as a result of domestic competition – that obviously doesn’t mean such competition is bad overall, or that the American economy would benefit if policymakers decided to prevent that competition from occurring.
Apple has to compete with both Microsoft, an American company, and with Samsung, a Korean company. It’s simply not the case that the results of their competition with Samsung is bad for Americans but the results of their competition with Microsoft is good. It’s good in both cases, and for the same reasons.
But “America” is not “competing” with “South Korea” when Americans buy Samsung phones or Koreans buy a new iPhone, any more than I am competing with Target when I make my weekly provisions run there. International trade can increase the scope of competition, but trade itself is not a competition, nor are nations competitors when the citizens of those nations trade with each other.
READER COMMENTS
steve
Jan 15 2025 at 7:20pm
I have a huge family with lots of engineers and lots of people in the trades. Most are strongly MAGA. So during the holiday gatherings I am usually alone arguing for the benefits of free trade. My observation based upon these discussions is that people are much less concerned about subsidizing production, that’s kind of abstract, but rather jobs. There remains the perception that if 2 American widget makers compete and one is winning all of the jobs remain in the US. However, if you throw in another company from China and it wins the competition, then all of the jobs go to CHina. Some of the family think those jobs then disappear and those Americans never work again, going on welfare or disability. Others think those workers get new jobs but they are all worse jobs, like working retail or fast food.
I think the subsidizing stuff is true and it’s good to talk about. Its probably especially useful with people who have made at least some efforts to read econ, but if you want to reach the masses you need to address the jobs issue.
Oh, and while you are at it try convince them that when the US imposes tariffs its people in the US who really bear the costs. Too many people think the announcement about the new External Revenue Service proves we dont pay for the tariffs we impose.
Steve
Monte
Jan 16 2025 at 2:33am
Some have argued, quite persuasively (at least among the uninitiated), that tariffs can be justified on the basis of fair trade or for national security reasons. But in deference to this passage from Milton Friedman’s classic book, Capitalism and Freedom:
Unilateral free trade is, on the evidence, most compelling. However, we live in a world ruled by politicians, who place a higher premium on compromise than principle – which is, after all, the best and cheapest lawyer.*
*Robert Louis Stevenson
David Seltzer
Jan 17 2025 at 10:29am
Kevin: Nice work. Per James Buchanan, incentives for policy makers should be considered. Their clients, the rent seekers, cronies, and union bosses are served ahead of the losers. If those clients aren’t well served they will elect someone who will. Threats of tariffs to protect selected industries ignore Lerner symmetry arguments when addressing international trade. Competition for my consumption bucks between Kroger and Publix means BOGO’s and discounts for some near-perfect substitutes.
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