A typical t-shirt starts as cotton in Texas. Traveling by truck or train to California, it continues moving westward until it reaches China. In China, the cotton becomes yarn which is made into cloth which is made into a t-shirt. With a “made in China” label, the t-shirt leaves China, headed for a screen printing plant in Florida. Perhaps months later, after the t-shirt has been sold and worn, it winds up in a used clothing bin, destined once again to travel thousands of miles to a clothing bazaar in Tanzania where it is sold.
This abbreviated tale of a t-shirt’s life is told in detail in The Travels of a T-Shirt in the Global Economy by Pietra Rivoli. Seemingly simple, its journey meets opposition everywhere. When the opposition is successful, trade is burdened by tariffs, quotas, licensing restrictions and other laws that limit entry and thereby preserve domestic textile jobs.. For Rivoli’s t-shirt, tariffs increase production costs by $.24.
At the end of a 2002 report from the Dallas Federal Reserve Bank called “The Fruits of Free Trade,” is a chart that conveys the cost of policies that save domestic jobs. For apparel and textiles, 168,786 jobs are saved. The cost though, is $33,629,000,000 or $199,241 per job. Why is the cost so high? Because consumers are paying more when there is no competition.
More tomorrow on the Dallas Fed’s report and a Teaching Company lecture from Timothy Taylor on globalization.
The Economic Lesson
David Ricardo’s principle of comparative advantage says that worldwide productivity increases when nations specialize and export the good or service for which they sacrifice the least to make.