In his proclamation for Black History Month, which is this month, President Trump said, “American heroes such as Frederick Douglass, Harriet Tubman, Thomas Sowell, Justice Clarence Thomas, and countless others represent what is best in America and her citizens.”

Sowell certainly does represent what is best about America. Rather than simply paying him lip service, Trump should check out Sowell’s book Basic Economics, where he will find this wisdom:

International trade is not a zero-sum contest. Both sides must gain or it would make no sense to continue trading. Nor is it necessary for experts or government officials to determine whether both sides are gaining. Most international trade, like most domestic trade, is done by millions of individuals, each of whom can determine whether the item purchased is worth what it cost and is preferable to what is available from others. . . .

What happens when a given country, in isolation, becomes more prosperous? It tends to buy more because it has more to buy with. And what happens when it buys more? There are more jobs created for workers producing the additional goods and services.

Make that two countries and the principle remains the same. Indeed, make it any number of countries and the principle remains the same. Rising prosperity usually means rising employment.

There is no fixed number of jobs that countries fight over. When countries become more prosperous, they all tend to create more jobs. . . .

The terminology used to describe an export surplus as a “favorable” balance of trade and an import surplus as an “unfavorable” balance of trade goes back for centuries. At one time, it was widely believed that importing more than was exported impoverished a nation because the difference between imports and exports had to be paid in gold, and the loss of gold was seen as a loss of national wealth. However, as early as 1776, Adam Smith’s classic The Wealth of Nations argued that the real wealth of a nation consists of its goods and services, not its gold supply.

Too many people have yet to grasp the full implications of that, even in the twenty-first century. If the goods and services available to the American people are greater as a result of international trade, then Americans are wealthier, not poorer, regardless of whether there is a “deficit” or a “surplus” in the international balance of trade. . . .

In the complexities of real life, seldom is any argument right 100 percent of the time or wrong 100 percent of the time. When it comes to arguments for international trade restrictions, however, most of the arguments are fallacious most of the time. . . .

In a prosperous country such as the United States, a fallacy that sounds very plausible is that American goods cannot compete with goods produced by low-wage workers in poorer countries, some of whom are paid a fraction of what American workers receive. . . .

Economically, the key flaw in the high-wage argument is that it confuses wage rates with labor costs — and labor costs with total costs. Wage rates are measured per hour of work. Labor costs are measured per unit of output. Total costs include not only the cost of labor but also the cost of capital, raw materials, transportation, and other things needed to produce output and bring the finished products to market.

When workers in a prosperous country receive wages twice as high as workers in a poorer country and produce three times the output per hour, then it is the high-wage country which has the lower labor costs per unit of output. That is, it is cheaper to get a given amount of work done in the more prosperous country simply because it takes less labor, even though individual workers are paid more for their time. . . .

At any given time, a protective tariff or other import restriction may provide immediate relief to a particular industry and thus gain the political and financial support of corporations and labor unions in that industry. But, like many political benefits, it comes at the expense of others who may not be as organized, as visible, or as vocal.

When the number of jobs in the American steel industry fell from 340,000 to 125,000 during the decade of the 1980s, that had a devastating impact and was big economic and political news. It also led to a variety of laws and regulations designed to reduce the amount of steel imported into the country that competed with domestically produced steel. Of course, this reduction in supply led to higher prices for all other American industries that were manufacturing products made of steel, which range from automobiles to oil rigs.

All these products made of steel were now at a disadvantage in competing with similar foreign-made products, both within the United States and in the in international markets. It has been estimated that the steel tariffs produced $240 million in additional profits to the steel companies and saved 5,000 jobs in the steel industry. At the same time, those American industries that manufacture products made from this artificially more expensive steel lost an estimated $600 million in profits and 26,000 jobs as a result of the steel tariffs. In other words, both American industry and American workers as a whole were worse off, on net balance, as a result of the import restrictions on steel. . . .

International trade restrictions provide yet another example of the fallacy of composition, the belief that what is true of a part is true of the whole. There is no question that a particular industry or occupation can be benefitted by international trade restrictions. The fallacy is in believing that this means the economy as a whole is benefitted, whether as regards jobs or profits. . . .

Tariffs are taxes on imports which serve to raise the prices of those imports, and thus enable domestic producers to charge higher prices for competing products than they could in the face of cheaper foreign competition. . . .

Sometimes this approach is buttressed by claims that this or that foreign country is being “unfair” in its restrictions on imports from the United States. But the sad fact is that virtually all countries impose “unfair” restrictions on imports, usually in response to internal special interests. However, here as elsewhere, choices can only be made among alternatives actually available. Other countries’ restrictions deprive both them and us of some of the benefits of international trade. If we do the same in response, it will deprive both of us of still more benefits. If we let them “get away with it,” this will minimize the losses of both sides. . . .

In some years, the best-selling car in America has been a Honda or a Toyota, but no automobile made in Detroit has been the best-selling car in Japan. The net result is that Japanese automakers receive billions of dollars in American money and Japan usually has a net surplus in its trade with the United States. But what do the makers of Hondas and Toyotas do with all that American money? One of the things they do is build factories in the United States, employing thousands of American workers to manufacture their cars closer to their customers, so that Honda and Toyota do not have to pay the cost of shipping cars across the Pacific Ocean.

Their American employees have been paid sufficiently high wages that they have repeatedly voted against joining labor unions in secret ballot elections. On July 29, 2002, the ten millionth Toyota was built in the United States. Looking at things, rather than words, there is little here to be alarmed about. What alarms people are the words and the accounting rules which produce numbers to fit those words.

A country’s total output consists of both goods and services — houses and haircuts, sausages and surgery — but the international trade balance consists only of physical goods that move. The American economy produces more services than goods, so it is not surprising that the United States imports more goods than it exports — and exports more services than it imports. American know-how and American technology are used by other countries around the world, and these countries of course pay the U.S. for these services. For example, most of the personal computers in the world run on operating systems created by the Microsoft Corporation. But foreign payments to Microsoft and other American companies for their services are not counted in the international balance of trade, since trade includes only goods, not services. . . .

When you count all the money and resources moving in and out of a country for all sorts of reasons, then you are no longer talking about the “balance of trade” but about the “balance of payments” — regardless of whether the payments were made for goods or services. While this is not as misleading as the balance of trade, it is still far from being the whole story, and it has no necessary connection with the health of the economy. Ironically, one of the rare balance of payments surpluses for the United States in the late twentieth century was followed by the 1992 recession. Germany has regularly run export surpluses, but at the same time its economy has had slower growth rates and higher unemployment rates than those of the United States. Nigeria has often had years of international trade surpluses and is one of the poorest countries in the world.

This is not to say that countries with trade surpluses or payments surpluses are at an economic disadvantage. It is just that these numbers, by themselves, do not necessarily indicate either the prosperity or the poverty of any economy.