Edward Walker and Henry Kincaid-
The ‘invisible hand’, coined by Adam Smith in his magnum opus The Wealth of Nations, is an economic principle often misunderstood or deliberately obfuscated. Smith’s idea was that in order for a businessman to turn a profit, they must offer products customers are willing to fork over their cash for. Subsequently, society as a whole benefits from products that improve their quality of life. In today’s consumer society of pointless gizmos and junk food, we tend to overlook the genuine life-improving products we take for granted every day. As a society, we wouldn’t be able to generate the wealth we do now if not for the automobile, mobile phone, and high-speed internet connectivity, all highly competitive products with an indisputable benefit, and associated competitive pricing, thanks to free market competition.
But what happens when governments turn away from free markets in order to protect industries from competitive foreign prices? Usually not what was intended. At the beginning of the 19th century, the UK government decided to implement high duty taxes on many imported products, such as brandy, tea, and corn (the latter of which gave name to the tariffs, ‘the corn laws’). This caused the centuries-old tradition of smuggling to rapidly grow out of control, with efforts to stamp it out becoming ever more costly. Eventually, the British government caved to public outcry and abolished the corn laws. The less productive farmers, now unable to turn a profit, moved to the city or emigrated. The same thing can be said for the American Chicken Tax; passed in 1968, the Chicken Tax was created as an agriculture tariff on imported potato starch, a cheap good used in various consumables, and also on imported brandy and imported light-duty trucks, namely those being created by Nissan and Toyota, pricing these objects out of the common person’s grasp. The Chicken Tax was primarily designed to make domestic equivalents more competitive, and this it did (for the most part), but it ultimately also left large gaps in the market that manufacturers refused to fill, or at least refused to fill adequately. With the lack of any competition, manufacturers allowed standards to slip, leading to products that were comparably inferior to those being created by foreign companies
Whether a foreign market is producing cheap goods because of an increase in productivity or government subsidies, it makes no odds to the domestic industries utilising these products. One of the main examples, steel, can easily demonstrate how tariffs can be misguided when looking at the whole picture. The US produces similar amounts of steel as it consumes in industry. The average steel worker is quite capable of retraining into new, similar fields. Assuming that without steel tariffs, every steel worker in the US lost their job, that would result in around 150,000 job losses. Now, if we assumed implementing tariffs caused every worker, involved in consuming steel, to lose their job, almost 2,000,000 people would be out of work. Of course, utilising free trade wouldn’t cause an immediate collapse of the steel industry, nor would tariffs cause the collapse of construction and manufacturing, so the question is; is the security of a sector with 150,000 employees as important as a variety of sectors with 2,000,000 employees? Just a 7.5% increase in job opportunities could totally absorb those lost to the decline of steel, assuming 100% redundancy.
Not only do manufacturing and construction industries benefit from the free trade of steel, but the invisible hand also extends to the average consumer in the form of more competitive pricing. Wanting to save jobs and industrial sectors is an admirable undertaking, and, of course no politician would ever want to be seen as the ‘pro-unemployment’ candidate, however; in reality, it may be shortsighted to save a handful of jobs at the expensive of the cost of living. In this case, the common good outweighs the ‘greater’ good.
The next edition will relate to consumer apathy, and will cover the flaws and effects of rational ignorance.