Free Trade and Immigration

Both free trade and immigration are hot topics in the United States these days. Senator McCain’s position on immigration has angered many conservative Republicans. On the other hand, the North American Free Trade Agreement (NAFTA) was enacted during the administration of Senator Hillary Clinton’s husband Bill, and anti-free traders oppose her nomination for that reason. Opposition to free trade is based largely on the idea that imports are harmful to Americans. While this may be true for some workers, it is not necessarily the case for either consumers or business owners.

Today, it is generally the Republicans who are the strongest supporters of free trade, but such was not always the case. For many years, the Republicans espoused the protectionist policies of Hamilton’s “American System” and a regime of high tariffs. One of the great high-tariff Republicans in the 19th and early 20th centuries was Henry Cabot Lodge of Massachusetts. Senator Lodge was an opponent of Chinese immigration, a big issue on the West Coast, and justified his position by asserting that letting Chinese workers into the United States was no different than allowing the free importation of Chinese goods.

This asserted equivalence of immigration and imports can be illustrated with a simple example. Let us suppose a manufacturer of pots and pans in Wisconsin employs 350 workers, all U. S. citizens, at $25.00 per hour. Then suppose that foreign immigrants are willing to do this work for $10.00 per hour. Moreover, foreign manufacturers are prepared to sell pots and pans in the United States at half the price charged by the Wisconsin firm. Now, if either imports or immigration is unrestricted, the effect on the workers in Wisconsin is the same: the company replaces them with foreign workers, or it goes out of business. In both cases American jobs are transferred to foreign workers.

Does this equivalence extend to consumers and business owners? If we allow free importation of the foreign pots and pans, then consumers will be able to buy them for much less than the domestic product. But if we allow free immigration, while restricting imports, manufacturers will be able to cut their labor costs and maintain their prices. So the consumer will only reap the benefits of lower labor costs if trade restrictions are also removed, thus creating a competitive environment in which prices will fall.

While the effects of free immigration and free trade are equivalent to the incumbent workers in domestic industries, from other points of view they are not equivalent at all. Free immigration offers manufacturers the benefit of a cheaper labor force. Consumers, on the other hand, will see that free trade leads to lower prices. Given the different effects of free trade and immigration on different groups in the society, it is little wonder that these have become important issues in the current election campaign.