Explaining Protectionism
March 17, 2011
IAN FLETCHER recently discussed his book Free Trade Doesn’t Work: What Should Replace it and Why on Thom Hartmann’s TV show “Conversations with Great Minds.” You can view the program here. Fletcher criticizes what he calls the “intellectual corruption” and the “ultra mathematicization” of academic economics.
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Wes writes:
I missed the discussion on protectionism last time around, but I thought I’d share a book that really help clarify things for me a while back, Henry George’s Protection or Free Trade (1886). It’s old enough to be online for free, in numerous places. A most relevant passage is chapter twelve on imports and exports, where he uses the example of Crusoe to debunk the logic of most protectionist arguments…
Robinson Crusoe, we will suppose, is still living alone on his island. Let us suppose an American protectionist is the first to break his solitude with the long yearned-for music of human speech. Crusoe’s delight we can well imagine. But now that he has been there so long he does not care to leave, the less since his visitor tells him that the island, having now been discovered, will often be visited by passing ships. Let us suppose that after having heard Crusoe’s story, seen his island, enjoyed such hospitality as he could offer, told him in return of the wonderful changes in the great world, and left him books and papers, our protectionist prepares to depart, but before going seeks to offer some kindly warning of the danger Crusoe will be exposed to from the “deluge of cheap goods” that passing ships will seek to exchange for fruit and goats. Imagine him to tell Crusoe just what protectionists tell larger communities, and to warn him that, unless he takes measures to make it difficult to bring these goods ashore, his industry will be entirely ruined. “In fact,” we may imagine the protectionist to say, “so cheaply can all the things you require be produced abroad that unless you make it hard to land them I do not see how you will be able to employ your own industry at all.”
“Will they give me all these things?” Robinson Crusoe would naturally exclaim. “Do you mean that I shall get all these things for nothing and have no work at all to do? That will suit me completely. I shall rest and read and go fishing for the fun of it. I am not anxious to work if without work I can get the things I want.”
“No, I don’t quite mean that,” the protectionist would be forced to explain. “they will not give you such things for nothing. They will, of course, want something in return. But they will bring you so much and will take away so little that your imports will vastly exceed your exports, and it will soon be difficult for you to find employment for your labor.”
“But I don’t want to find employment for my labor,” Crusoe would naturally reply. “I did not spend months in digging out my canoe and weeks in tanning and sewing these goat-skins because I wanted employment for my labor, but because I wanted the things. If I can get what I want with less labour, so much the better, and the more I get and the less I give in the trade you tell me I am to carry on—or, as you phrase it, the more my imports exceed my exports—the easier I can live and the richer I shall be. I am not afraid of being overwhelmed with goods. The more they bring the better it will suit me.”
And so the two might part, for it is certain that no matter how long our protectionist talked the nation that his industry would be ruined by getting things with less labor than before would never frighten Crusoe.
Yet, are these arguments for protection a whit more absurd when addressed to one man living on an island than when addressed to sixty millions living on a continent? What would be true in the case of Robinson Crusoe is true in the case of Brother Jonathan. If foreigners will bring us goods cheaper than we can make them ourselves, we shall be the gainers. The more we get in imports as compared with what we have to give in exports, the better the trade for us. And since foreigners are not liberal enough to give us their productions, but will only let us have them in return for own productions, how can they ruin our industry? The only way they could ruin our industry would be by bringing us for nothing all we want, so as to save us the necessity for work. If this were possible, ought it seem very dreadful?
Well, for one, they can cause us to borrow huge sums to pay for their productions. Those foreigners can offer their goods so cheaply and outbid so many American industries at once that they seriously decrease the purchasing power of Americans and their ability to sell goods at all.
I have an instinctive aversion to buying so many things from abroad, products that could conceivably be made here. Perhaps that aversion is sentimental and uninformed. I realize that, but I can’t seem to shake it. Let me give you a small example. There once was a healthy craft industry in America composed of people who made relatively inexpensive crafts in small factories or in their homes, the sort of cheap folk art that you buy when you go into tourist shops. Much of this stuff is made in China now. Now it’s true that the people who once made these crafts can buy cheap clothes and other goods from foreign countries and thus do not have to earn as much to purchase many products. But there is not much that easily replaces those goods that could be produced in homes with a little bit of know-how and not much capital. I don’t get it. Don’t significant tariffs on those imported products make sense?
The free trade response would be that there wouldn’t be as many tourist shops and as many tourists if those cheap Chinese crafts weren’t available. Still, whenever I go into a small town, and walk into a gift shop and turn over the tchotchkes on the shelves and see they’re all made in China, something seems deeply amiss.
That’s just a tiny example. There are much more worrisome issues, such as the stagnation of middle class incomes in the past thirty years.
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Dan writes:
I share your aversion for importing so much from China, but I still disagree with protectionism. It is still better to import cheap products than to protect or subsidize local production. Look at those employed by protected unionized jobs. Their products and services are inferior and it breeds a sense of entitlement. It seems almost as spirtually damaging as living on welfare. At least welfare recepients are expected to have some sense of shame while unions are actually proud of what they do.
A more consistent policy would be to apply the same environmental standards, safety regulations and minimum wage adjusted for local purchasing power to foreign manufactures. Since the rational for these regulations are moral than they should apply to any goods we buy. This will level the playing field.
Or another alternative is not cripple our domestic manufacturing with so much regulation.
Either way the playing field would be a lot more level. The Chinese have the advantage of cheap labor but the labor is expecting higher wages as China gets richer. Also producing locally with people who speak english is a big advantage for Americans.
Laura writes:
Does protectionism necessarily bring about union excesses? Isn’t that a separate problem?
There are large numbers of Americans who will never be high functioning information technology workers. It would seem strange to apply high moral standards to foreign workers when so many Americans who could benefit from manufacturing jobs are underemployed.
Roger G. writes:
Everyone please pardon me for repeating myself, but there’s no point in reinventing the wheel. The answer is that free trade works, and protectionism doesn’t. The great minds have already resolved this issue, and they can explain it much better than I. Watch Milton Friedman on youtube; I PROMISE you’ll be astounded at the ease with which he eviscerates protectionist and socialist arguments. Read some Bastiat online; same result. Adam Smith, Von Mises, Hayek; it’s all available for free. I have freely admitted to Laura that I myself can’t discuss or debate the issue very well; that’s why I’m sending you all to the masters.
Now if Laura would only do a post on flying saucers, there’s a matter within my competence. But oh no; it’s always about what SHE wants. Sometimes i wonder just whose blog this is. And I’ll bet Fred Owens feels the same way.
Anyway, to my mind, the three mainstays of our conservatism should be social traditionalism, constitutional originalism, and economic libertarianism.
Dan writes:
Yes, protectionism leads to union excesses. At the best case scenerio it makes the entire American work force into a union that is using government to force consumers to buy their uncompetitive products. Protectionism is regulation on who gets to do business and who gets to make money. It is inevitable that this will lead to the worst kind of corruption.
When I talked about applying a moral standard to foreign workers I meant that it would benefit American industry. Right now, American industry is handicapped because American businesses have to pay a minimum wage and provide a certain level of safety and comfort for the employees while their foreign competitors have no regulations. If a minimum wage and employee safety are moral issues than all products we purchase should be manufactured under the same rules and the same costs and Americans manufacturing employees can stay competitive.
I don’t believe a minimum wage or excessive regulations are helpful or needed, but if they are applied they should be applied to foreign as well as domestic manufacturers.
Jeff W. writes:
The free-trade advocates who have commented here are naïve and misguided people. I speak both as one who has studied economics all my adult life and who also is a Midwesterner, a region where our manufacturing-based civilization has now been nearly wiped out.
It is possible and desirable to have free trade with a nation that has free trade with us. Examples of that might be Australia and some of South American countries. Free trade with such countries is a very good thing. But there are also in this world mercantilist nations who are in an economic war against us. These countries buy from us the raw materials that their manufacturers need, but they exclude from their markets American manufactured goods. Sometimes they will bow to pressure and make a token gesture that they are moving toward free trade, but those acts of deception are just part of their economic warfare strategy.
Just as white America is in a state of denial about Hispanics, Muslims, and blacks seizing control of larger and larger geographic sections of the U.S., free-trade advocates are in denial about the economic war we are losing.
Former generations of Americans knew how to deal with countries with closed markets. Commodore Perry showed up in Tokyo harbor in the 1850’s with a squadron of gunboats. Those guns persuaded the Japanese to embrace free trade. Modern Americans make no effort to open up Asian markets largely because Americans elites have lucrative investments in low-wage factories there. Those same elites also promulgate free-trade claptrap that Americans gullibly swallow.
Laura writes:
That seems to be one of Ian Fletcher’s main points, that the United States can’t uphold free trade principles with trade partners that do not.
Dan writes:
What Jeff W. is talking about is a separate issue and I agree with him to a point. There are predatory countries that we should not have free trade with, but this is different from protecting American jobs from cheap foreign labor.
Free trade is beneficial even if the foreign government subsidizes their own industries and do not practice free trade in return. The worst case scenario is that foreign tax payers will subsdize goods for the American consumers. If protectionism is harmful to America why would it beneficial to a foreign economy?
The only scenario where free trade should not be allowed is when a foreign government targets American industries and American technology.
The Japanese government and Japanese companies in the past have colluded to artificially lower prices of their products in the past to the point of losing money in order to put western companies out of business and control industries. They have also used their laws in order to force Western companies to license their technologies to Japanese manufacturers in order to sell their products in Japan. Giving the Japanese Western developed technologies for free. But again this is a separate issue.
American manufacturing jobs are not going to Japan or to any other first world country. And there doesn’t need to be a conspiracy behind lost American jobs. We have crippled our industries with affirmative action, feminism, environmentalism, over regulation and all the other leftist nonsense that is destroying every other part of society.
A reader writes:
I would like to second Dan’s point that the U.S. and other Western countries are importing goods from other countries that are cheaper than we can produce not because of any natural comparative advantage, but because those countries do not have the same laws and regulations regarding such things as environmental regulations, workplace health and safety, minimum wage laws and the like. To the extent that such laws and regulations are morally necessary (some but not all cases, in my opinion), we are getting cheap goods at the moral cost of patronizing companies which treat their workers and environment in ways that we have deemed wrong and would not tolerate at home.
