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Getting Real about Protectionism

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Here’s a letter to Cafe Hayek patron Felix F___:

Mr. F___:

Thanks for your e-mail. I’m happy to learn that my Café Hayek posts and links help you to better understand the benefits of trade and the fallacies of protectionism.

To get to the root of the matter it’s useful to think in terms, not of money, but of real resources and choices. A tariff that prompts you to buy a domestically produced (say) car instead of a car produced abroad has several negative economic consequences. Here are three.

First, the tariff forces you, when you buy a new car, to give up – to spend – more goods and services or leisure time than you would otherwise have to give up. The tariff thus makes you poorer. How could it not? It’s meant to deny to you economic opportunities that you find attractive in order to prompt you to settle for economic opportunities that you would otherwise find unattractive and reject.

Second, the tariff reduces the economy’s overall output of goods and services. It does so by causing some domestic labor and other resources to be used to produce outputs that we, absent the tariff, would acquire without using these workers and resources to produce these outputs. The tariff, thus, shrinks the size of the bundle of consumption goods and services available to us. We have less to consume. Our standard of living is unnecessarily kept lower. And neither the higher wages of protected workers nor the higher profits of protected firms should blind anyone to the reality of the smaller economy-wide output of goods and services.

Third, with government in the business of doling out protective tariffs, producers spend more  time and other real resources lobbying for these special privileges and, hence, less time actually producing goods and services for our consumption. Producers who successfully lobby for tariffs are indeed enriched. But their riches come at the greater expense of the general public. Just as successful burglars enrich themselves at the greater expense of the general public – after all, time and resources spent burgling are time and resources diverted away from actually producing goods and services – successful lobbying for tariffs diverts producers’ time and resources away from actually producing goods and services.

Protectionism is much more akin to armed robbery and burglary than most people suppose. Indeed, it’s really just a camouflaged version these predatory crimes.

I don’t deny that clever people have spun logically coherent stories of how protective tariffs, under just the right circumstances, can enrich everyone. Yet you should accord such stories no more relevance than you would accord logically coherent stories of how legalized burglary, under just the right circumstances, can enrich everyone. Vastly more is possible in theory than is plausible in reality.

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