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The Perverse Logic of Protectionism

Posted By Don Boudreaux On July 13, 2012 @ 8:52 am In Seen and Unseen,Trade | Comments Disabled

Here’s an e-mail sent to a correspondent.  (His name is used here with his kind permission.)

Mr. Roger Wilson

Dear Wilson:

In response to my quotation yesterday of Paul Krugman [1] praising in 1997 the economic case for a policy of unilateral free trade, you write that “he probably would not have said this if the unemployment rate was as high [then] as it is now.”

For at least two reasons, I’m pretty sure that Dr. Krugman, writing in 1997, did not condition his endorsement of unilateral free trade on the U.S. economy being at full employment.  (In fairness to your suggestion, though, I concede that Mr. Krugman does today seem to have backed away from endorsing unilateral free trade [2].)

First, Dr. Krugman in 1997 surely understood that protectionism is a poor policy for boosting employment.  (Witness the unpromising results of the Smoot-Hawley tariff [3].)  Being then, as now, a Keynesian, Dr. Krugman would have instead encouraged government to combat unemployment with aggressive fiscal policies.

Second and more importantly, Dr. Krugman in 1997 certainly understood that if high unemployment at home were indeed a good reason to restrict competition, there would be no reason to restrict only that competition that comes from abroad.  Restricting all competition would be justified.

If restricting competition were a wise policy for periods of high unemployment, government should curb not only auto imports, but also domestic sales of used cars.  (Doing so would spur domestic auto production.)  If raising tariffs on foreign goods is appropriate when unemployment is high, then it’s also appropriate to impose tariffs on do-it-yourself home remodeling and do-it-yourself auto repair.  (Tariffs on these activities would create more jobs for handymen, housemaids, and auto mechanics.)  If, when the economy is slumping, government should force consumers to spend extra money on products supplied by domestic producers, then government should slap tariffs not only on imports but also on home-cooked meals.  (By forcing consumers to dine at restaurants, such a measure would create more jobs for cooks, waiters, and maître d’s.)

The illogic of protectionism is rooted in its mistaken premise that political borders are economically meaningful.  Dr. Krugman in 1997 was a master of exposing that illogic.

Sincerely,
Donald J. Boudreaux
Professor of Economics
George Mason University
Fairfax, VA  22030

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URLs in this post:

[1] my quotation yesterday of Paul Krugman: http://cafehayek.com/2012/07/mercantilist-myths-persist.html

[2] Mr. Krugman does today seem to have backed away from endorsing unilateral free trade: http://www.nytimes.com/2010/03/15/opinion/15krugman.html?ref=opinion

[3] the unpromising results of the Smoot-Hawley tariff: http://www.independent.org/publications/tir/article.asp?a=857

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