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Gary M. Galles - Contributor

Mr. Galles is a professor of econmics at Pepperdine University.

Protectionism Far From Patriotic
Here's what it really is: a business-government conspiracy to rip off consumers

[Gary M. Galles] 1/5/04

Faced with the prospect of reciprocal policies that would punish U.S. exporters, President Bush recently backed away from the steel tariffs he had imposed earlier. Of course, abandoning that protectionism led to attacks from those who were being protected at others' expense, dressed up as patriotism and sovereignty arguments, as when United Steelworkers of America President Leo Gerard called it the "latest in a long line of WTO [World Trade Organization] decisions undercutting America." Those arguments are bogus.

Protectionism, dressed up as patriotism, follows a well-worn script. Imports are found to harm a domestic industry, creating an excuse for "I'm for free trade, but we must defend America" protectionist policies. But imports always harm the competing domestic industry, by reducing demand for its output, so that this provides political cover whenever any industry gets the government's ear.

This script portrays the conflict as U.S. producers vs. foreign producers, implying that patriotism should lead us to favor American producers. If that were accurate, and we cared more about "our" producers than foreign ones, we would give them preference, other things equal. However, it substantially misrepresents reality. More accurately, protectionism is U.S. producers conspiring with our government to rip off U.S. consumers, incidentally harming foreign producers in the process.

Depicting protectionism as a fight between domestic and foreign producers ignores the central issue - when would American consumers buy from foreign producers when given the choice? When they offer a better deal through lower prices and/or higher quality. So when trade restrictions take away those superior options, they make our consumers poorer. And patriotism does not imply we should help American producers beggar American consumers.

Making protectionism even worse is that its transfer of wealth from American consumers to American producers is a negative- sum game. The resources represented by the difference between the price of such a good if imported and the higher cost of domestic production are wasted for each unit of output "protected."

Our founders, hardly unpatriotic, recognized this. For instance, Thomas Paine, the fiery orator of our revolution, argued that free trade was deducible from the principles "on which government ought to be erected," and that protectionism, even if dressed up as patriotic, is just "the greedy hand of government, thrusting itself into every corner and crevice of industry," at the behest of some Americans against others.

A companion buzzword in anti-trade claims is sovereignty. International initiatives that constrain government impediments to international trade have resulted in some domestic laws and policies being challenged or overturned, as with the WTO's steel tariff ruling. Therefore they are attacked for undermining governments' sovereign power over their citizens.

The sovereignty criticism is true, in part. Such agreements do restrict government powers to discriminate against foreign producers. But foreign producers are the allies of domestic consumers in offering lower prices and higher quality products than would otherwise be available domestically. Therefore, such restrictions on government control (the true meaning of sovereignty) advance the welfare of a country's citizens.

No amount of spin changes the reality that free trade creates wealth, and trade restrictions destroy wealth. Claims to the contrary are no more than a Trojan horse for anti-consumer legislation, reflecting Adam Smith's observation that "I have never known much good done by those who affected to trade for the public good."

George W. Bush has often pledged allegiance to free trade. But his original steel tariff decision repudiated his valid arguments for free trade. Unfortunately, he did not recognize that decision for what it was and overturn it on principle, but Americans can be grateful that the threat of retaliation from other countries led him to the same result.

copyright 2003 Gary M. Galles




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