From: sitomlin@undergrad.math.waterloo.edu (Stephen I. Tomlinson)
Subject: Re: NAFTA
Organization: University of Waterloo
Distribution: can
Date: Thu, 13 Aug 1992 16:43:15 GMT

The assertion that we need protection from cheaper labour is being made
in the media again.  But the evidence is so stacked against this notion 
that economists dismiss the assertion as a fallacy:

Excerpted from _Macroeconomics_, 7th ed 1991, Lipsey, Purvis, Steiner, p. 427:
"Fallacious Protectionist Arguments:
". . .
"Protect against low-wage foreign labour:
"
"Surely, the argument says, the products of low-wage countries will
"drive U.S. and Canadian products from the market, and our high-standard
"of living will be dragged down to that of our poor trading partners.
"Arguments of this sort have swayed many voters over the years.
"
"As a prelude to considering them, stop and think about what the
"argument would imply if it were taken out of the international context
"and put into a local one, where the same principles govern the gains
"from trade.  Is is really impossible for a rich person to gain from
"trading with a poor person?  Would the local millionaire be better off
"if she did all her own typing, gardening and cooking?  No one believes
"that a rich person cannot gain from trading with those who are less rich.
"Why, then, must a rich group of people lose from trading with a poor 
"group?  'Well,' you say, 'the poor group will price its goods too
"cheaply.'  Does anyone believe that consumers lose from buying in a
"discount house or a supermarket just because the prices are lower there
"than at the old-fashioned corner store?  Consumers gain when they can
"buy the same goods at a lower price.  If the [Mexicans] pay low wages
"and sell their goods cheaply, [Mexican] labour may suffer, but we will
"gain because we obtain their goods at a low cost in terms of the goods
"that we must export in return.  The cheaper our imports are, the better
"off we are in terms of the goods and services that are available for
"domestic consumption.
". . .
"Might it not be possible, however, that [Mexico] will undersell 
"Canadian and U.S. industries in all lines of production and thus
"appropriate all, or more than all, the gains for itself, leaving
"[Canada and the U.S.] no better off, or even worse off, than
"if they had no trade with [Mexico]?  The answer is no.  The reason
"for this depends on the behaviour of exchange rates.  . . .  
"Equality of demand and supply in foreign exchange markets ensures that
"trade flows in both directions.
"
"Imports can be obtained only by spending the currency of the country
"that makes the imports.  Claims to this currency can be obtained only
"by exporting goods and services or by borrowing.  Thus, lending and
"borrowing aside, imports must equal exports.  All trade must be in two
"directions; countries can buy only if they can also sell.
"
"In the long run, trade cannot hurt a country by causing it to import 
"without exporting.

(I took the liberty of making the following changes to the text:
 [Mexicans] was 'Koreans'
 [Mexican] was 'Korean'
 [Mexico] was 'Japan'
 [Canada and the U.S.] was 'the North American countries'.)

-Stephen
Xref: sparky can.politics:5890 soc.culture.canada:5710