esult of the actions of the United States, namely the “Nixon shock.” This refers to the announcement made by the Nixon administration in 1970 in which theadministration concluded that it could no longer justify the expense of subsidizing globaltrade. The administration saw a direct correlation between the inflation andbalance-of-payments deficit that was plaguing the US and the unfair advantage the USprovided for its self in subsidizing global trade. The administration believed the only wayto combat Japanese and European discrimination against US exports, was to break awayfrom fixed exchange rates.The United States is a capital-intensive country, meaning that its inputs consistmostly of machinery, in contrast to labor-intensive countries in which labor controls theoutput of the economy. For example, in 1970 the labor costs of the US and of WestGermany were twice that of Japan. By 1986, the labor costs were comparatively equal. Also in 1970, US manufacturing productivity was 58 percent greater than West Germanyand 105 percent greater than Japan. By 1986, these figures had fallen to 20 percent and 2percent, respectively. The United States is far advanced and leading in technologicaldevelopment, by concentrating on the efficient output of its capital goods. Only 30,000 ofmore than 3.5 million patents were held by citizens of developing countries.David Ricardo, an American economist, speaks on the same side as Lindsey whenhe states that all countries benefit from specialization and trade. Trade has potentialbenefits for all nations. Tariffs, export subsidies, and quotas simply interfere with themovement of goods and services around the world. This idea can be illustrated in theexemplary situation where the addition of a $1 tariff on imported textiles leads to the lossof efficiency. This $1 tariff has led to two components. First, consumers must pay ahigher price for goods that could be produced at a lower cost. Sec...
