Protectionism fully implemented across all industries would mean a lower standard of living, because it would result in capital and labor unnecessarily being diverted into the production of goods that could more economically be produced elsewhere.
Some say imports are bad for the economy. But consider one implication of that belief. It would mean that during war you’d want to ship your enemy as many goods as possible. After all, the imports would hurt his economy, right?
Obviously the exact opposite is true. A nation at war wants to block its enemy’s trade precisely because trade is beneficial.
Thus protectionists, in the words of one economist, “want to do to their own country during peacetime what the country’s enemies would wish to do to it during wartime–that is, close its borders to imports.”
Many think of free trade in terms of nations doing business. One hears that America has so many millions of dollars worth of trade with Taiwan, for example, and so many millions with Singapore. But actually the commerce is between companies, not countries.
For instance, when you see something labeled “Made in Taiwan” on a store shelf, it’s there because owners of a company in Taiwan and owners of a company in America cooperated with one another, as individuals should be at liberty to do. To oppose that is to oppose freedom.
Indeed, when protectionists seek to block imports– often under the banner of “patriotism”– what they’re really blocking is the free exercise of property rights. And there’s nothing American about that.
Protectionism is as wrong in practice as it is in theory. Just as you’re better off “importing” goods into your house from stores rather than laboring to produce everything yourself within the borders of your home, so too is a nation better off observing that same principle.
Consider that if it were true that imports from other nations hurt America, that principle would also apply to goods imported into one state from another, and into one county, city or municipality from another county, city or municipality.
So we’re to believe, then, that New Yorkers would be more prosperous if they could ban, say, Florida oranges and Hawaiian pineapples in order to produce them locally?
Certainly New York businessmen could, at great expense, construct special environments suitable for growing orange trees and pineapple plants. And that would indeed create jobs in New York that didn’t previously exist, jobs being one of the main rationales for thwarting imports.
But New Yorkers– including those employed in the newly created industries– would end up paying much higher prices than if the goods were simply imported from locales where factors of production were cheaper.
To further illustrate, imagine if American labor unions managed to get high tariffs levied on clothing manufactured outside the US. Results? For one, we’d all pay more for clothes, including union members. And that, in turn, means we’d have less money available for life’s other needs and pleasures.
Moreover, because the tariffs would erase the advantage of cheap foreign labor, it would become artificially profitable to manufacture clothing in the US.
“Wonderful!” exclaim labor leaders. “That’s exactly what we want– more goods made on American soil.”
But consider that the artificially induced profitability of the clothing manufacturing industry, brought on by tariffs, would tend to attract capital away from other areas.
For instance, because consumers would be poorer for having to pay more for clothes, sales of less basic goods– high tech products, for example– could very well lag. Thus some of the capital that might otherwise have gone into creating, say, the next generation of computers or wireless communications might instead be diverted into building blue jeans factories and the like.
Or perhaps some capital might flow away from the pharmaceutical industry.
After all, if capitalists can suddenly get a good bang for their buck making T-shirts, risky long-term drug research becomes that much less attractive.
Bottom line: protectionism fully implemented across all industries would mean a lower standard of living, because it would result in capital and labor unnecessarily being diverted into the production of goods that could more economically be produced elsewhere.
Imagine a couple of decades of such folly, and some graying union boss learning he has a terminal illness. No doubt he’d fault “greedy capitalists” for not having found a cure. But the cumulative effects of his own foolish policies would very well be at least partly to blame.
Let’s just hope somebody would be there to throw a T-shirt in his face and say, “There’s where your cure went, brother.”
Originally published in Capitalism Magazine in 2004.