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What if….

The letter below is to someone who tells me by e-mail that he was once “fooled by free trade ideology” but has since discovered the error of his ways.

Mr. Phil Becker

Mr. Becker:

Unhappy with my recent criticism of Wilbur Ross, you allege that economists’ case for free trade “puts ivory tower theories over tough reality.” Not so. Indeed, to a large degree, the economic case for free trade is simply an application of the logic of arithmetic.

Protectionists see, for example, that tariffs on steel imports lead to more output of domestic steel and more employment in the domestic steel industry. Economists, too, see these effects. But economists also ‘see’ that which protectionists either can’t or won’t, namely, that the materials and workers that are directed by tariffs to the domestic steel industry come from somewhere else. These materials and workers are diverted from other domestic industries, where they would have produced outputs other than steel (and, of course, they would been paid for these efforts).

Is it “ivory-tower theory” that insists that the materials and workers diverted by tariffs to particular domestic industries do not fall free from the heavens – that these materials and workers are diverted from other uses? Is it “ivory-tower theory” that demands that the value of what would have been produced through these other uses be counted against the value of that which is produced by the uses made possible only by tariffs? Is it “ivory-tower theory” to reason that when tariffs succeed at making goods less abundant in the domestic economy that goods are less abundant in the domestic economy – and that less abundance means a smaller economic pie than does greater abundance?

If you really want to find poor theorizing – to find those who elevate vague notions above common sense and the rules of arithmetic – look no further than the pronouncements of protectionists. It is they who spin rococo tales of how the artificial creation of greater scarcity leads to the creation of greater abundance. And it is protectionists whose arguments rely heavily on dubious “what-if” speculations: What if China becomes the monopoly producer of steel? What if our military will be unable to defend us tomorrow if we import too many semiconductors today? What if our cutting tariffs on imports from Korea and Chile will prompt those governments to raise their tariffs on our exports? “What if, what if, what if!” Protectionists – ivory-tower theorists that they are – never tire of bombarding us with fanciful hypotheticals.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030