Here’s a letter to a new correspondent.
Mr. R__:
Thanks for your e-mail.
You ask if there are “circumstances when the case for tariffs for growing the economy beats the case of free trade.”
No, at least not as long as decision-makers, private and public, are human.
There are two variants of the economic case for protectionism. One is the naïve and the other is the arrogant.
The naïve protectionist (who, in my experience, is most common) implicitly assumes that labor, capital, and resources are free. He sees, say, steel tariffs increase the domestic output of steel, and domestic employment in the steel industry, and triumphantly concludes that tariffs increase total domestic output and employment. This protectionist is blind to the fact that the labor, capital, and resources that the tariffs draw into the domestic steel industry are drawn away from other domestic industries. The naïve protectionist ignores the domestic outputs and jobs that protectionism destroys.
The arrogant protectionist is also naïve, but in a very different way. In contrast to the naïve protectionist, the arrogant specimen will admit that tariffs cause protected industries to expand only by causing other domestic industries to shrink, but he’s naïvely confident that the additional outputs and employment of the protected industries are of higher value than the lost output and employment of the shrunken industries. When asked how he came by this knowledge, he has no good answer. Typically, he’s dumbfounded that the question is even asked (“How can you not see that we should produce more steel?!” “Isn’t it obvious that we need more manufacturing jobs?!”). And when not dumbfounded, he answers only with irrelevancies – such as “We’re running trade deficits!” or “Foreign governments subsidize their exports!” – that he naïvely thinks suffice to seal his case.
But press the arrogant protectionist by asking “Trade deficits and subsidies there might be, but, still, how do you know that the additional economic value generated in the protected industries will exceed the value lost in the shrunken industries?” and you’ll find that the closest he comes to offering a substantive answer is to insinuate that he, and the government officials who’ll faithfully follow his advice, simply know better than do market participants what is the ‘right’ mix of domestic outputs and what are the ‘right’ methods of producing these outputs. Without realizing it, he poses as a mystic – one who, bizarrely, is quick to accuse free traders of relying on nothing but blind “faith.”
When you point out to the arrogant protectionist that both theory and history confirm that competitive market forces, while not perfect, are far more reliable than are political decision-makers at allocating resources productively, his dogma makes him deaf. He’ll not hear it. Someone who has as a premise that his knowledge is superhuman will not be persuaded that his knowledge – like that of every other individual – is puny.
Each protectionist, both the naïve and the arrogant – oblivious as each is to economic reality – is like someone who, upon asking a dishonest or inept bank teller to break his $100 bill and receiving in return four $20 bills, rejoices at being enriched by $80.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
