By Don Boudreaux
A popular argument against free trade is the following: Workers in high-wage countries are impoverished if they trade freely with workers in low-wage countries.
If valid, this argument presents a legitimate economic reason for high-wage countries to avoid trading with poorer countries.
This argument, though, is bunk.
It rests on the mistaken assumption that wages are arbitrary. In fact, wages in America are higher than wages in Mexico because American workers are more productive than are Mexican workers. And American workers' higher productivity is the result of these workers having more capital to work with and to get their outputs to market — more and better tools; more and safer roads, bridges and docks; more and better education and job training; and more co-workers who are highly specialized (and, hence, who possess deeper knowledge of how to perform their tasks).
These advantages oblige employers to pay workers in America more than employers pay workers in Mexico. American firms that stubbornly refuses to pay their workers wages that reflect those workers' productivity eventually lose those workers to other employers who aren't so stubborn.
Here's a challenge: When you next hear a politician or pundit exclaim that “high-wage Americans can't compete with low-wage foreigners,” re-word the claim so that it becomes “high-productivity Americans can't compete with low-productivity foreigners.” The two statements, for all practical purposes, mean the same thing; they're just worded differently. Yet no one would for a moment take the re-worded version seriously.
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