In his 1976 book about the Soviet Union, The Russians, Hedrick Smith noted that while Americans in the ‘70s frequently faced long lines for gasoline, Soviet citizens stood in long lines for every consumer item. Worse, when goods were actually available, they were of the lowest possible quality. 

While most in the world today equate possession of money with being “rich,” the Soviet experience proved the faulty nature of that assumption. Private savings of rubles rose from 91 billion in 1975 to 165 billion in 1981, but average Soviet living standards were well below those of the most impoverished Americans during the period. Savings were highest in the Soviet countryside—where the availability of consumer goods made Moscow’s bare shelves seem like New York’s Fifth Avenue.  

Wealth in the former Soviet Union didn’t mean savings, but “blat,” which was a Russian word for access to goods (including those from the west) only available in shops accessible to a small elite. True “blat” was the ability to travel abroad. According to an account from British diplomat Nigel Broomfield in Smith’s book, when Soviets reached Western cities they “were like coiled springs, leaping at the department store cornucopias of the West.” Rather than touring, “Russians came back incredibly laden with new dresses, slacks, shoes, shirts, radios, the whole kit.” Soviets clamored for trips abroad not just to breathe relatively freely, but to shop. When they returned, the goods they brought with them were sold at large markups to less privileged Soviet citizens.

The Soviet experience should be remembered in discussions of a free trade agreement with South Korea, new tariffs announced against China, and the troubled Doha round of trade talks. Rather than concentrate on what the U.S. will win or lose in the short term, U.S. negotiators will do best if they focus on the long haul, in which free trade is its own reward. If we open our markets, foreign buyers of our goods will ultimately materialize in droves.

People often talk about what we can ‘get’ in return for making it easier for foreigners to sell their goods here. This approach is backwards.

Much of the current talk about trade deals involves what we can “get” in return for making it easier for foreigners to sell their goods here. In practice, such conversations are about industry-specific exemptions to the general rule of freer trade, designed to confer a relative advantage on the United States. This approach is backwards.

To the extent that foreign companies can provide Americans with cheaper necessities, we’ll be enriched. Money saved on the goods we purchase will either free up money for items we couldn’t previously afford, or it will serve as capital that will fund the creation of future businesses and jobs. 

Notwithstanding the higher standard of living Americans would enjoy if trade concessions only emanated from U.S. negotiators, some would argue that U.S. producers will lose if foreign countries maintain barriers to our goods. If we’re buying while limited in our capacity to sell, won’t the outflow of dollars eventually impoverish us?

Hardly. Be they Americans, South Koreans, Chinese, or the French, people produce so that they can consume. As the story of the former Soviet Union makes clear, money itself is not wealth, and if we’re sending our dollars overseas for goods, foreign consumers enriched by our purchasing power will soon enough clamor for access to U.S. products not available or affordable due to trade barriers. Foreign barriers to U.S. goods will gradually erode due to their own citizens’ consumer desires, or, as evidenced by the cacophony of strange languages heard on Rodeo Drive and Fifth Avenue, wealthier foreigners will visit the States en masse to get that which they can’t buy in their home countries. 

In the end, U.S. trade negotiators must remember that if we create barriers to foreign goods, we’ll also be creating barriers to foreign purchases of what we produce. If we create an open field for trade in our markets, the customers will come. 

John Tamny is the editor of RealClearMarkets. He can be reached at jtamny@realclearmarkets.com.

Image credit: Photo by John Beverley