The Lerner Equivalence Theorem – that an import tariff is equivalent to an export tax – carries a powerful message: a country that tries to protect import competing industries from foreign competition may be able to help those industries expand, but it will also force other industries to contract. High trade barriers will harm export-oriented industries, erase some of the gains from trade, and reduce national income.
DBx: Yes. And such import restrictions might also reduce foreign investment in the ‘protected’ country, denying to the citizens of that country many of the fruits of the savings and entrepreneurial ideas of their fellow human beings who happen to live abroad.
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Protectionists point with pride to the firms and jobs that their trade barriers help to create and sustain. These firms and jobs are real, but these firms and jobs are not – contrary to protectionist mythology – evidence of the success of protectionism. These firms and jobs represent wasted resources – workers, capital, and other inputs that, absent the protectionism, would have been used to produce outputs elsewhere in the country. And these foregone outputs – these outputs that are not produced – would almost certainly have had higher values than those of the additional outputs made possible by protectionism.
It is the rare protectionist who even acknowledges that protectionism cannot protect particular firms and jobs without destroying, elsewhere in the domestic economy, other firms and jobs. Most protectionists believe in free lunches – miracles – manna from heaven – rabbits pulled from hats – 10 minus 2 equalling fifteen. But even those rare protectionists who do acknowledge the inescapability of this trade-off never tell us how they know that the value to the people of the home country of the protected firms and jobs is, or will be, greater than the value of the destroyed firms and jobs.
