Understanding the Value of Protectionism
The following article is a reply to Dan Griswold's article on Free Trade.
Bio: Economist
Dan’s cheery (if somewhat bubble-inflated) statistics on the recent general prosperity of the U.S. are a mere distraction here, as nothing about these figures indicates whether free trade worsened or improved them. So I will not address them.
Some of Dan’s analytically-relevant assertions, however, are demonstrably false, like his claim that “trade has created better jobs for millions of Americans.” The reality is that the U.S. economy has ceased generating net new jobs in internationally-traded sectors. All our job growth is now in non-tradable sectors like waitresses and security guards.
Dan repeatedly confuses the benefits of trade with the benefits of free trade. Nobody on the protectionist side is proposing abolishing all trade, but we don’t need a trading system without reasonable limits in order to gain from a bit of foreign competition. We rejected pure laissez faire in our domestic economy a very long time ago; there’s no good reason to suppose it makes any more sense internationally.
It is no accident that the U.S. was historically a protectionist economy. The Founding Fathers understood the value of protectionism, so they explicitly granted Congress the power “to regulate commerce with foreign nations” in Article I, Section 8 of the Constitution. If protectionism is such a bad idea, why did the U.S. go from being an agricultural backwater to the world’s industrial superpower under this policy? Why did Japan go from bombed-out rubble to the second-richest nation in the world this way? Why is China growing nearly ten percent a year this way?
Dan’s claim that global poverty has declined due to free trade is bizarre given that, according to the World Bank, the entire net reduction in global poverty since 1981 has been in protectionist China.
Similarly implausible is Dan’s assertion that free trade “promotes… the spread of democracy, human rights, and peace” given that free trade (on America’s part, not theirs) is today massively enriching governments like that of China, enabling them to buy the bullets they need to oppress their own peoples and menace their neighbors. And human rights? Under the WTO’s free-trade rules, the sanctions imposed on South Africa in 1986 would now be illegal. And free trade has been the origin of shooting wars for a long time: that’s how Hong Kong became British.
Dan writes that “U.S. companies and their workers cannot prosper in the long run without tapping into global markets.” This is unlikely in light of the fact that corporate America and American workers were the world’s most successful in the 1950s and 1960s, when American exports were tiny in comparison to today.
Dan denies that our trade deficit is a sign of trouble on the grounds that it “reflects inflows of foreign capital.” This sounds good, but elides the fact that “inflows of foreign capital” means either a) Americans accumulating debt to foreigners, or b) Existing American assets being sold off to foreigners. Therefore it makes us a poorer nation by definition; this is a basic accounting identity.
The rest of the hard economics of Dan’s position appears to consist in counting up the (undenied) benefits of free trade, then assuming that these benefits “must” surpass free trade’s costs because of economic logic that is either:
a) simply assumed on the grounds of libertarian ideology.
or
b) based on cartoonish oversimplifications of how real economies work, outdated theories of trade that haven’t been updated since Ricardo’s 1817 theory of comparative advantage, and a failure to acknowledge that free trade economics takes for granted certain factual premises that are observably not true today.
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This Work, Understanding the Value of Protectionism , by Ian Fletcher is licensed under a Creative Commons Attribution-No Derivative Works license.
Copyright © 2010 Ian Fletcher
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The USA is now almost completely de-industrialized, and public pressure is being applied to relocate the remainder of our industries and US jobs with the proposed "Cap and Trade" legislation, existing environmental laws, and the anticipated costs of future environmental legislation that will be "piled onto" our remaining US located industries.
Industries located in the USA know that there will be many more future Environmental Regulations implemented by the EPA that will require expensive cost outlays of investment for compliance. Our US businesses know that even if they can economically survive the current proposed environmental legislations, more and more environmental legislation will be "piled onto" them in the future.
If there is an economic life cycle cost analysis that would allow some US factory to stay in the USA today, the business managers should fire their US workers and relocate that factory to a foreign country in order to escape the costs of the anticipated future environmental regulations that the US government will almost certainly create, and also to take advantage of lower labor costs and more productive labor work rules that are available in foreign countries.
Foreigners are now employed in foreign factories as they make more and more of the things that US citizens are consuming, instead of US citizens making them in USA located factories. The US located plant owners have since relocated those factories, equipment, and those jobs to the foreign countries that have fewer environmental regulations than the USA.
At least US citizens now have cleaner air to breathe since we have closed down most all of our remaining basic industry factories and terminated the employment of most of those US citizens that were employed there! Foreigners are now employed in those foreign factories as they make the things that US citizens were consuming.
The plant owners have since relocated those factories, equipment, and those jobs to the foreign countries that have fewer environmental regulations than the USA to meet the US consumer demand for the lowest possible consumer item prices.
There was an era in the 1960's when people living in Pasadena, Texas would say that their refinery pollution smelled like jobs, US dollars, food, housing, and college educations for their children.
New Green Environmental jobs are nice, but paying US citizens with US dollars borrowed from industrial producing nations to then pay US citizens to keep busy raking leaves, performing environmental cleanups, government bureaucrat payrolls, social programs, digging a hole in the ground and then filling the same hole, just does nothing to correct the Foreign Trade Deficit that is the basic economic structural foundation defect of the USA.
I do not like it when a few of us die from polluted air, but this is better than the majority of us starving to death from economic chaos.
Yea, Dan has been spouting nonsense for several years.
I agree that the U.S. needs to protect itself against agressive export oriented activities of other nations and I agree that protectionism was a part of the mix during the period after the Civil War when the U.S. grew to become the great economic power.
However, today we need something other that "protectionism". That word has come to mean tariffs or subsidies levyed on individual products separately - one tariff for steel, another for shirts, another for sugar. That is not the way to go, for a variety of reasons.
We need tariffs on ALL imports that come into the U.S. from five countries only. Why 5? They collectively are resonsible for 60% of our trade deficit. The most efficient way to reduce the U.S. trade deficit is to restrict imports from the nations that are creating the problem. This is a managable system that will not be immediately subject to retailation.
We do need to protect ourselves. But we should use the best means possible - not just do what has been done before.
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