Economists For Protectionism: Part 2  

March 24, 2014

This is the conclusion of the previous post where we give examples of notable economists who oppose international free trade and are in favor of some form of protectionism.

Stephen Roach, lecturer at Yale University’s School of Management, chief economist of Morgan Stanley says,

“America’s recovery without job creation could well be here to stay. That could also be the case in Europe, Japan and elsewhere in the developed world. … The choices are stark. Either we fight the loss of traditional sources of job creation through politically motivated protectionism, or we turn the pressures to our advantage as a catalyst for uncovering new sources of economic growth. Learning to live with globalization was never going to be easy. But coping with the global labour arbitrage is proving to be especially vexing for the body politic, to say nothing of the global economy and world financial markets.”

He would likely prefer uncovering new sources of economic growth (wouldn’t we all?), but his arguments about the problems stemming from global labor arbitrage are serious. Looking back at history shows protectionism works too.

Cambridge University Professor Ha-Joon Chang argues,

 “Almost all of today’s rich countries used tariff protection and subsidies to develop their industries.”

Economic historians from the Japan Institute of America write,

Protection from foreign competition was probably the most important incentive to domestic development that the Japanese government provided. The stronger the home market cushion…the smaller the risk and the more likely the Japanese competitor was to increase capacity boldly in anticipation of demand growth. This can give the firm a strategic as well as a cost advantage over a foreign competitor operating in a different environment who must be more cautious.”

For some accessible articles written by an economist debunking the idea of all-free-trade-all-the-time, Ian Fletcher has a blog over at Huffington PostThis one and this one are good to start off.

Even Nobel laureate Paul Krugman, who would not be considered a radical protectionist by any stretch of the imagination, writes,

“In 1971 the United States dealt with a similar but much less severe problem of foreign undervaluation by imposing a temporary 10 percent surcharge on imports, which was removed a few months later after Germany, Japan and other nations raised the dollar value of their currencies. At this point, it’s hard to see China changing its policies unless faced with the threat of similar action — except that this time the surcharge would have to be much larger, say 25 percent. I don’t propose this turn to policy hardball lightly. But Chinese currency policy is adding materially to the world’s economic problems at a time when those problems are already very severe. It’s time to take a stand.

He says in another article,

Don’t say that any theory which has good things to say about protectionism must be wrong: that’s theology, not economics.

6 Responses to Economists For Protectionism: Part 2

  1. TaxiDriver on July 20, 2014 at 9:16 am

    All pro-free (lunch) trade economists claim that there is no reason that political boundaries should have to be economic boundaries. The falsity of this claim is easily shown:

    1. Economic boundaries are boundaries with respect to commerce.
    2. Commerce is the exchange of property.
    3. Property is merely a set of rights.
    4. Rights (real rights, not theoretical rights) may only be protected coterminously with its political boundaries.

    Therefore, political boundaries are INHERENTLY identical to economic boundaries. Your rights under your state end at the border. Beyond them, you’re at some other states mercy, if any.

    Adam Smith said that it’s so obvious that it’s not even worth debating that “every prudent master of a household” would always acquire whatever is cheapest. If it’s cheaper to buy something from another than to make it at home, then buy it, and devote the savings to productivity in ones own affairs.

    In a closed economy, however, the hole in Smith’s assertion is readily seen… since that which is stolen is always cheapest, since that which wasn’t worth the effort of stealing is the only thing which could be cheaper.

    Ferrengi 14th rule of acquisition: Anything stolen is pure profit.

    Clearly, an economy dominated by stolen merchandise is doomed, due to the double damage of stolen goods: namely, the harm to the victim of the theft, and the harm to the market for the good. Nobody can compete with stolen goods.

    Consider: If a bicycle is stolen in China and sold in the US, is it still stolen under US law? If a million bicycles are stolen in China and sold in the US, what does that do to the market for bicycles?

    Now, suppose instead that the bicycles themselves are not stolen, but rather that the labor to make them is stolen. Is that not the economic equivalent of the bicycles themselves being stolen?

    Chinese laborers are cheaper because they are not free, have few rights, and are oppressed, just as some laborers were in the Southern US before the civil war. Their lack of real rights allows their oppressors to deprive the workers of the ability to receive full value for the fruits of the workers labor. In that light, everything those workers produce is stolen to some degree.

    Just like with stolen goods, the theft of the fruits of the workers’ labor destroys the economic cycle of each seller also being a buyer. Those who have been robbed of their value have nothing left with which to buy anything, and thus constitute no part of aggregate demand. You end up with a supplier with no reciprocal demander. This is the detriment of stolen property on the market.

    Between sovereign states, there can be no mechanism that ensures that goods are not stolen. If a mechanism exists to govern both countries, then they are inherently not sovereign, but rather both serve some higher order. Conversely, if they are both sovereign, then there can be no mechanism that can hold both countries to the same standard.

    Acknowledging this, then the only way one state can protect itself against stolen goods from another state is to ban all imports. Failing this, one state can attempt to minimize, if not totally eliminate the economic contagion of theft by imposing a hefty tax upon imports, which tax should approximate what would be the direct labor component cost of the good had it been made domestically.

    The so-called “infant industry” argument is a canard, since the tariffs must ALWAYS remain in place, and not merely until one has achieved a strong domestic industry. Even the most world dominating industry (can anybody say General Motors?) can be knocked off its hill in the face of cheap labor from a so-called “emerging” country.

    Free Traders also like to argue that they can demonstrate by model that tariffs harm the economy. However, they do this by applying the micro-economic implementation of the “ceteris paribus” constraint to a macro-economic model. In micro-economics, they assume that “other things remain equal” merely by ignoring them. But in a macro setting, overall taxation must be held constant if the model is to be meaningfull. So they impose a tariff in the variable scenario, but assume that all other inputs remain the same. WRONG. A tariff is a tax, so if you want to model the behavior of tariffs, then you have to hold overall taxation constant. This means that the variable model that imposes a tariff, would also require that general taxes be discounted by the same amount.

    Altering the model in this way yields a totally different result – to wit: in the tariff model, domestic GDP rises at the expense of foreign GDP, with no change to overall consumption.

    Gee, could that be how America got rich in the first place?

    • Jay Paul on July 21, 2014 at 10:15 am


      Well said! Would you mind if we used this reply for an article on the site? We will give you full credit as a Guest Writer.

      Jay Paul

    • Andrea on January 20, 2015 at 10:40 am

      ……Its not a union thing since no one would accuse GW Bush of being a stoge for the unoins. (Bush slapped tarrifs on steel in 2002)So you have to go back 7 years to find a Bush example, and there are 3 new examples in just 8 months, plus years of speeches available on Youtube favoring unoins, and “its not a union thing.”I’ll wait for more data, but I’ll stick with my hypothesis.

  2. wolfgang5485 on October 5, 2014 at 1:34 am

    Your points are well made. What worries me is not that American businesses don’t understand this but rather that they don’t care about the millions of American workers they are hurting in their search for grotesque profits. I also worry that the reason nothing has been done about this obvious cause of our rampant unemployment is because big business owns both sides of the political aisle. Therefore, how do we fight back?

  3. chummathe.alle on January 6, 2015 at 2:03 pm

    I have seen many of my coworkers loose their job because of outsourcing. I greatly appreciate your efforts to spread this message among thousands of Americans. We need to start creating awareness in public about the problems of outsourcing. Distributing pamphlets in public is one of the cheapest and efficient ways of spreading this message.

  4. Ivan on January 20, 2015 at 6:09 pm

    This makes it official then. The real berfniciaeies of the tariff are the unionized employees. Just as the main berfniciaeies of the GM bailout and the cash for clunkers were the unionized employees.At least this one nets some revenue versus using taxpayer money. Of course that tariff is being paid for almost completely by people earning less than $250,000, but hey it’s not a tax.

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