On Twitter (X), I announced that I would field questions pertaining to international trade, inasmuch as President-Elect Trump’s economic agenda relies heavily on (the threat of) tariffs. One respondent asked me, “How can US workers compete with Chinese slave labor?” I have covered this topic in an InFi podcast episode, but here I’ll give my response in written form as well.
How Can a Teenager Compete With an NBA Star or a Brain Surgeon?
Before diving into the complex scenario of international trade, let’s start with something simpler: How can an American 18-year-old young man, armed only with a high school diploma, possibly compete in an economy that also has a 25-year-old NBA starting forward with a college degree, and a 35-year-old brain surgeon? If we suppose that the surgeon is (say) 5’11” and in good shape, both he and the NBA player can outperform the teenager in just about any job imaginable. So on paper, one might suppose that the 18-year-old would find it impossible to get a job in the US economy.
Of course, that’s not what happens. In reality, the market solves this problem through higher and lower wages or salaries. Specifically, the NBA star makes millions of dollars a year, and the brain surgeon makes hundreds of thousands, while the teenager works at McDonalds or in lawn service making under $20 per hour.
Notice that we could also flip the question and ask: Given that there are teenagers willing to work for (say) $15 per hour, how can our 25-year-old and 35-year-old men possibly compete? And the answer, of course, is that they are so much more productive (at various jobs) than the teenagers, that even though they expect a much higher salary, it is still worth it for employers to hire them as well.
Finally, consider this: No matter what the teenager or the older men do for a living, they only have 24 hours in a day, some of which must be devoted to sleep. There is only so much they can produce. Now whatever job(s) they take, there are always going to be thousands of other occupations left available, as options for the remaining workers to fill. It will never be the case that low-wage teenagers, or super productive athletes, will absorb “all of the job opportunities” and leave nothing left for the rest of the work force.
Applying the Logic to International Trade
The same reasoning applies to international trade, where US workers are analogous to our NBA star or brain surgeon, and typical workers in China (or Bangladesh) are analogous to our 18-year-old with only a high school diploma. If we ask, “How can US workers possibly compete with low-wage competition?” the answer is, “Because US workers are so much more productive than their typical Chinese counterparts.” If US workers can’t remain competitive in a specific industry (such as the production of inexpensive toy cars, which Walmart ends up importing from foreign factories), that’s the market’s way of channeling US workers to their proper niche—just like the relative wage rates ensure that brain surgeons don’t end up working at McDonald’s or cutting lawns.
It's not a brute fact of nature that US workers earn a higher salary than the average worker in a factory in China or Bangladesh. It’s because US workers are so much more productive, that they have the option of taking other work that pays more than what a US-based toy car manufacturer could afford to pay them. As I’ve spelled out in an earlier post, the principle of comparative advantage shows how people in various countries achieve a higher standard of living by specialization and trade. The specific wage rates and product prices in different industries channel workers in each country into those areas that fit their comparative advantage. That’s how the workers “know” where to go.
And as one final consideration: Whatever it is that the workers in China (or Bangladesh) do with their time, there is only a finite amount of product they can make and ship to the rest of the world. There will always be plenty for the American (and British, etc.) workers to do, in addition. Planet Earth won’t run out of available jobs.
But What About Slavery?
Now if we move beyond the mere fact of low-wage foreign workers, and suppose that there is actual coercion involved, we introduce an ethical issue. If someone wants to argue that the US government should outright prohibit the importation of foreign goods that we believe have been produced through genuine slavery, then that is a coherent stance. (Even here, tariffs against slave-made goods doesn’t really make sense.)
Yet even here, we should be clear on what the claim is. The US having access to slave-made foreign products doesn’t make Americans poorer (on average), in a direct pecuniary sense. If someone on the street offers to sell you a genuine Rolex at 50% of the normal price, you would suspect it is stolen. So you might refrain from the purchase out of a sense of moral principle (and I would applaud your behavior). But it wouldn’t make you poorer to get a genuine Rolex at a much lower price; that obviously (in a narrow pecuniary sense) makes you richer.
In summary, if China hawks want to restrict imports that we believe are made with actual slave labor, then that is a defensible stance. It will make goods more expensive for Americans and hence restrict our options, but it might be the moral thing to do. However, the existence of slave labor—and more generally, low-wage labor—around the world doesn’t make it hard for US workers to compete. No matter what foreign workers are doing, American workers can always be sorted into their comparative advantage niches, based on the underlying productivities. Buying a stolen Rolex might be immoral, but the existence of Rolex theft doesn’t cause mass unemployment for US workers.
Dr. Robert P. Murphy is the Chief Economist at infineo, bridging together Whole Life insurance policies and digital blockchain-based issuance.
Twitter: @infineogroup, @BobMurphyEcon
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