The Other Side of Protectionism

February 2, 2011 § Leave a comment

I wrote earlier in the week about my views of protectionism, and my perception that only through protectionism can the West (and the U. S. in particular) secure it’s economic leadership role in the world.  But, mine of course is not the only view, and I thought it would be useful to see what the free traders had to say on the subject.

The ISIL published a defense of free trade, written by Vincent Miller and James Elwood, so let’s see what they have to say:

  • Protectionism costs jobs:  Miller and Elwood say that trade barriers (quotas and tariffs) increase the cost of doing business (presumably to the protectionist country, though they don’t specify).  This leads to a ratio of 8 jobs lost for ever one created by protectionist policies.
  • Protectionism leads to higher prices:  As a nation taxes imports, prices of those imports rise.
  • Protectionism increases the tax burden on consumers:  more trade regulations means more regulators to enforce them, more regulators means ore taxes.
  • Foreign Debt:  The west is owed hundreds of billions by the East, and if the West cuts off it’s markets to the East, then the East cannot earn the currency to repay their debts.

ISIL’s publication on the subject is as descriptive of the free trade philosophy as any.  The problem that with these general statements is that they are illogical and/or unsupported:

  • First problem,8 jobs lost for every one created.  ISIL says this statistic comes from the U. S. Department of Labor, yet the authors don’t provide a link or actual citation to the source.  A quick Google search shows that statistic is often cited, but the source never is.   The same exact quote appears in a piece at copperwiki as well, and while it has a footnote, the footnote only says that the statistic comes form the Department of Labor. Beacon to the World cites the same statistic, and gives Miller and Elwood as its source. The Heritage Foundation also lays claim to the statistic, but also chooses not to provide an actual citation for it.    When someone cites a study but doesn’t tell you where to find it, the information they’re providing should be taken with a giant spoon full of salt.
  • Problem two, protectionism leads to higher prices:  free trade has not kept prices stable.  Wages in America have been flat since 1972.  Even with the explosion of foreign goods into the U. S., prices have risen by about 4% per year, or more than 120% in the last 35 years.  The question is:  who got the benefit of those higher prices?  Instead of American blue collar workers sharing in the benefit of increased corporate profits, the jobs were shifted to cheaper countries, and the profits were reaped by a few huge investors.
  • Three, protectionism leads to higher taxes:  they offer no support for this argument other than their word.  Of course government employees could simply be shifted to areas of greater need at no increased cost (there is no way the government is operating at 100% efficiency and cannot afford to move people around a bit).
  • Foreign debt:  this argument could be otherwise stated as, “if you want to collect the money you owe me, you’d better give me more money”.  This sort of circular logic doesn’t even deserve a response.

In my opinion, trade is just a game.  Like all other games, the participants must agree to a set of ground rules.  A football team would not agree to play a game in which the opposition could run any plays it wanted to, but it could only run a power toss right.  Free trade, as we experience it today, is no different.  Developing countries are protecting their markets, ensuring a cheap source of labor to industry, and dumping cheap goods on the U. S. at a rate that sustains inflation.  The playing field is not level, and so there is no Free trade.  The only question is whether the drive for higher profits by a few wealthy and powerful Westerners will be allowed to dictate the rules, rather than the drive for a secure and wealthy Western middle class.

What do you think?  Can the U. S. and Europe compete with cheap Asian goods?  What will happen when the Chinese middle class rivals the population of all of the West, and our markets are no longer needed, and our jobs are already gone?  Is free trade good for the people, or good for CEOs?

 

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