The fallacies of protectionism know no bounds.
Mr. F__:
Thanks for sending along Glenn Beck’s recent remarks on trade and tariffs. I’m afraid I don’t share your admiration of what you describe as “his unanswerable defense of tariffs.” Here are answers to three of the most confused parts of Beck’s peroration on trade and tariffs.
First, he’s mistaken about trade allegedly “hollowing out” America’s industrial economy and middle class. It’s done no such thing.
Second, he’s mistaken that America’s industrialization in the 19th century was fueled by protective tariffs. The great trade economist Doug Irwin debunked this myth in a famous paper in which he reports that those sectors of the 19th-century American economy that grew fastest were sectors unprotected by tariffs. Irwin further discovered that, in his words, “tariffs may have discouraged capital accumulation by raising the price of imported capital goods.”
Along these same lines, Phil Gramm and I found that 19th-century U.S. economic growth, as we put it in our book, “was strongest in periods when average tariffs were falling, not rising.”*
Third, and perhaps most egregiously, Beck is mistaken that free trade was good for the U.S. in the few decades after WWII because, while America’s industrial base was unscathed by the war, that of most of the rest of the world lay in ruins. By extension, he also believes that free trade today works much less well for us because we no longer, in his words, “own the market.”
While perhaps superficially plausible, the substance of this argument is deeply flawed.
It’s true that American industry, unlike foreign industry, was unscathed by the war, but it’s untrue that this situation was advantageous for us Americans. We produce only to receive real goods and services in exchange. When our trading partners are unproductive, they have relatively little to exchange. In that situation we might well, as we did just after the war, produce a larger share of global exports, but the absolute amounts that we sold in foreign markets were less than these amounts would have been were foreigners more productive – that is, our exports were fewer than these would have been had foreigners been able to offer us more and better outputs in exchange.
If you doubt this reality, suppose that the war had so devastated foreign economies that to this day the only things of value they can produce are kitchen matches and cheap socks. We Americans would indeed still “own the market,” but would we be richer than we actually are today? Would our economic prospects rise if foreigners suddenly lost their ability to efficiently produce and sell the likes of high-quality wine, aluminum, clothing, consumer electronics, and machine tools, and were reduced to producing only matches and socks? Clearly not – yet Beck’s argument leads to the opposite conclusion.
Taken to its logical conclusion, Beck’s argument implies that he’d be far richer than he is if every other person on earth were completely unskilled and denied access to all but the most rudimentary hand tools. He would own the market! Surely, though, you see that in such a poor world he’d be destitute even if he himself possessed the skill and genius of Leonardo along with a large workshop full of the most advanced capital goods.
Beck has matters backwards. Free trade is more advantageous to us the more productive are foreign economies.
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* Phil Gramm and Donald J. Boudreaux, The Triumph of Economic Freedom (Lanham, MD: Rowman & Littlefield, 2025), page 110.
