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Bad Argument for Protectionism #8,933,092,991,654,722

The world suffers no shortage of arguments for protectionism. And given protectionism’s long (and sordid) history, no such argument is original. (The last time an original argument in support of protectionism appeared on this earth was likely during the presidency of Millard Fillmore.)

And so it comes to pass that EconLog commenter “James” pushed back against David Henderson’s entirely reasonable and compelling argument that the USMCA (which went into effect on July 1st, 2020 by replacing NAFTA) is a lamentable step back from free(r) trade toward protectionism. One of the USMCA’s features that David rightly complains about is its increase in the amount of North American “content” that must be in automobiles produced in North America if these vehicles are to be sold here duty-free. Another feature is the agreement’s requirement that certain auto workers in Mexico be paid the equivalent of at least $16 per hour.

James thinks these features of the USMCA to be just dandy. Here’s the bulk of the comment that I left at EconLog in response:


You write:

The auto industry changes [with USMCA] on whole seem good for America. Judging from the poor quality products that come out of Mexico and China the US consumer should also benefit from the North American content requirement and the minimum age requirements. Wins all around

You here overlook two critical points. First, because auto sellers in the U.S. have every incentive in the market to supply that level of quality that consumers are willing to pay for, your insinuation that the quality of “products that come out of Mexico and China” is too low is unwarranted. American consumers can on their own determine the level of quality they desire in their automobiles; they do not need the U.S. government to make this determination for them.

Second, the domestic-content and minimum-wage rules in the USMCA have nothing to do with ensuring product quality and everything to do with protecting parts producers, and certain workers, in the U.S. from foreign competition. Therefore, far from ensuring that autos and auto parts will be of the quality that consumers expect, these provisions – by dimming the intensity of competition – will likely cause product quality to fall.