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Bonus Quotation of the Day…

… is from page 117 of Eamonn Butler’s superb 2021 book, An Introduction to Trade & Globalisation:

Trade can be a convenient scapegoat for an industry’s failure to adapt to technological advances, financial upheavals, or changing markets.

DBx: Yes.

This insight reveals yet another cost of protectionism. Even if in a particular instance a protectionist intervention enabled the survival of an efficient domestic firm or industry that would otherwise have been destroyed by misguided market forces, this intervention creates or strengthens an unfortunate precedent – namely, domestic companies’ willingness to blame their fellow citizens who buy imports foreign competitors for their current woes and, thus, to plead to government for special protection or privileges.

Insofar as government is willing to listen sympathetically to such pleas, firms in the home country have muted incentives to achieve greater efficiencies, to innovate, and to charge prices as low as possible. Business-executives’ anticipation, with a probability greater than zero, of salvation through protectionism thus incites these executives to manage their companies in ways that actually increase the likelihood of being out-competed by foreign rivals and, hence, of ‘needing’ the pleaded-for protection or subsidies.

This moral hazard is real but too-seldom accounted for in discussions of trade policy.

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