Tariffs Now!

Labor-based trade is bad for everyone.

Photo by Rinson Chory on Unsplash

Labor is not a resource.

Trade runs on something called “comparative advantage.” It’s a slippery concept, because it relates to the relative cost of things and not their absolute cost.

The classic example of comparative advantage was offered by David Ricardo, who described the trade of British cloth for Portuguese wine. Each partner to that trade had a comparative advantage in the thing it was selling. That was true even though, in absolute terms, Portugal might be able to produce cloth as cheaply as England. So long as the Portuguese could deliver $X worth of wine more cheaply than they could make $X worth of cloth, they did best by selling wine and using the proceeds to buy cloth. And, of course, vice versa.

The wine/cloth example assumes equal labor costs. The parties are trading England’s surplus rain for Portugal’s surplus sunshine. The cloth and wine are just packaging. Neither side is trading on the wages of its workers. They are trading on the natural endowments of their geography. But no law of nature says that only “natural” resources can give rise to comparative advantage. Any difference in cost structure can support trade.

The term “human resources” takes on a new meaning if we put the emphasis on the “resource” and not on the “human.” For as…