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Protectionism Is a Mindless – and Dangerous – Reflex

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My most-recent column for AIER is the first entry in what will be either a two-part or three-part series on why the call for autarky is obscenely misinformed [2]. A slice:

[William] Upton is also factually mistaken in his clichéd assertions about the role of government in fostering American economic growth in the 19th century, Japanese economic growth in the 20th century, and Chinese economic growth over the past 40 years.

Regarding the role that protective tariffs played in the U.S. during its first full century of existence, Dartmouth’s eminent trade economist and historian, Douglas Irwin, says this [3]:

[I]t’s become very hard actually to attribute US economic growth in the late 19th century to those higher tariffs. A lot of the key improvements in technology and a lot of the growth was in the service sector: telecommunications, railroads, and things of that sort. Manufacturing really didn’t grow much as a share of GDP in the late 19th century. A lot of that grew actually in the pre-Civil War period when tariffs were actually much lower – only in the range of 20 percent or so.

So there is the simplistic argument that one encounters a lot – that tariffs allowed us to grow rapidly in the late 19th century – but the more you look into it you see it’s a really tough case to make.

What about Japan, whose economic development is alleged to have been promoted by bureaucrats manning that country’s Ministry of International Trade and Industry (MITI)? Here’s economist Benjamin Powell [4]: “While striking examples exist of companies succeeding despite MITI’s discouragement, evidence of successful promotion does not.” (See also David Henderson’s thorough debunking [5] of the myth of successful Japanese industrial policy.)

China? Nope – the evidence is overwhelming that that country’s economic growth occurred only to the extent that markets there were freed. This conclusion is driven home by, among others, Nobel-laureate Ronald Coase and Ning Wang [6], and by the meticulous research of Nicholas Lardy.

Writing in 2003 [7], Lardy noted “the unilateral trade liberalization that China undertook during the reform period, even prior to its accession to the World Trade Organization.” He concluded back then that “[b]y a number of measures China transformed its economy from one of the most protected to perhaps the most open among emerging market economies.” And Lardy now warns – as summarized by a report [8] on his superb 2019 book, The State Strikes Back [9] – that “China’s move away from market-oriented reforms has undermined the country’s economy, and Beijing’s leaders must reverse course soon to prevent a tailspin.”

Economies, in short, grow the more open and free they are – that is, the further they are from being autarkic. Economies do not grow as a consequence of politicians and mandarins using tariffs, subsidies, and other special privileges to shield domestic producers from foreign competition.

William Upton’s wildly mistaken understanding of history gives us a clue about the quality of his theoretical case for making American autarkic – a case that I’ll explore in my next column.