Protectionism

Contrary To Nationalist Myths, Protectionism Is an Economic Disaster

American protectionism has repeatedly failed as an economic strategy.

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American economic nationalism has risen in recent years, both fueling and fueled by President Donald Trump's election.

With it has risen the view, perpetuated by Trump and many others, that protectionism has been an effective policy throughout the nation's history—that past U.S. government restrictions on foreign competition were manifestly successful in achieving their stated policy objectives: decreased imports, increased jobs, industrial revival, opened foreign markets, and, more broadly, American economic prosperity. These purported historical "successes" have been used to justify a new round of nationalist economic proposals.

This revisionist history ignores a vast repository of academic analyses of and contemporaneous reporting on the periods and policies in question, showing the many failures of American trade protectionism. It relies on well-worn protectionist myths and the mere correlation of economic improvement with protectionist experimentation.

Contrary to what appears in the news and on the campaign trail, the scholarship paints a much different picture. American protectionism—even in the periods most often cited by Trump and others as "successes"—has not only imposed immense economic costs on consumers and the broader economy, but typically failed to achieve its primary policy aims and fostered political dysfunction along the way.

Mention of this scholarship is absent from the current political debate about the consequences and the future direction of U.S. trade policy. It seems not a day goes by without reading or hearing some unwitting politician, journalist or even "academic" recount past episodes of American protectionist "success"—almost always without any evidence to support such claims and despite the quiet, authoritative corrections of actual trade policy experts.

My new policy analysis for the Cato Institute seeks to remedy this problem; it establishes that contrary to the fashionable rhetoric, American protectionism has repeatedly failed as an economic strategy. Examining anti-trade measures over three different periods of American trade policy history delineated by milestones in the evolution of the U.S. and multilateral trading system, I find that protectionism not only imposed large and expected costs on U.S. consumers—dwarfing any possible gains to protected industries and workers—but also (and more unexpectedly) failed to achieve even their most basic objectives.

Multiple studies of U.S. import restrictions between 1950 and 1990 found that each measure analyzed imposed on average $620,000 per year (2017 dollars) in additional costs on U.S. consumers for each job supposedly saved or created in the protected industry at issue.

During the same period, other studies found that in only one instance—the bicycle industry—did protectionism appear to resuscitate and help an industry flourish after import protection disappeared. The reason: the US industries didn't actually reinvest their windfall profits in cost-saving technologies that would improve their long-term competitiveness—even when those companies had the capital available to make such investments. Import quotas and "voluntary export restrictions," meanwhile, were found to disproportionately help, not hurt, protected American companies' foreign competitors.

Similar studies of subsequent periods found even higher costs and the same lack of tangible benefits, particularly when U.S. exporters faced foreign retaliation. None of these studies even tried to calculate the intangible costs of protectionism, such as decreased competition or increased cronyism, on the U.S. economy.

Even episodes most often cited as protectionist "successes"—post–Civil War industrialization, the revival of Harley-Davidson, the American semiconductor industry, and the 1980s era of retaliation and reciprocal market opening—are shown to be at best neutral and at worst total failures.

The tariffs that supposedly saved Harley, for example, were found to have generated only six percent of the company's profits while the tariffs were in place, primarily because Japanese producers focused on other segments of the U.S. motorcycle market. Higher prices did little to shift American consumers from Japanese bikes to Harleys—something any serious Hog rider could have told you without all the fancy analysis.

Economic and legal changes over the last few decades—owing to increased American integration into the global economy, the proliferation of complex international supply chains, the rise of other economic powers, and the creation of the World Trade Organization—would make protectionist failures of previous eras even worse if repeated today. In other words, if President Trump tried to recreate past protectionist "successes," he'd cause even more pain for even less gain.

The United States has struggled in recent years to adapt to significant economic disruptions due to trade, automation, innovation, or changing consumer tastes. How we should respond to these challenges warrants discussion and consideration of various policy ideas. What should not be up for debate, however, is whether protectionism is a solution to the country's current problems.

History is replete with examples of the failure of American protectionism; unless our policymakers quickly relearn this history, we may be doomed to repeat it.

Scott Lincicome is an international trade attorney, Cato Institute adjunct scholar, and adjunct professor at Duke University Law School. The views expressed herein are those of Lincicome alone and do not necessarily reflect the views of his employers.

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  1. Smoot-Hawley for the win!

    Beuller? Beuller? Beuller? Beuller? Beuller?

  2. The unions aren’t going to like this blog post.

    1. unions wouldn’t understand. Since you can’t un-brainwash a zombie, you can only guarantee the same retort.

      unions created the weekend and the poor union laborer is fighting the good fight against the greedy capitalist’s effort to exploit the back bone of America.

      And somehow that same load of sh*t has worked for 150 years.

      All perfect ammunition for future politicians to go to the same swell over and over again.
      Americans deserve the union riots that will soon embroil industrial parks and ports all over the place once the robots displace all of these useless thugs from their pointless wasteful jobs.

  3. All that trade protectionism failed America into the world superpower.

    1. The Soviet Union, too – maybe you’re on to something here. . .

    2. All that trade protectionismbeing the only country whose industrial capacity wasn’t bombed to shit during WWII failed America into the world superpower.

      Fixed.

      1. What the hell does that have to do with anything? God you libertarians are so full of fake factoids that only your curdled brains can see any pattern in. God.

        1. Re: Scarecrow Repair & Chippering,

          What the hell does that have to do with anything?

          That it’s a lie that protectionism helped America become a military superpower.

          1. I figured it was more like a honey trap for broken sarcasmometers.

      2. And besides, how do you explain Australia? Or Brazil? Or hell the rest of South America, or Africa, or India?

        God. God. God! Smite these heathens and their faketoids.

        1. Re: Scarecrow Repair & Chippering,

          And besides, how do you explain Australia? Or Brazil? Or hell the rest of South America, or Africa, or India?

          Can you be a little more vague, please?

          1. No, that’s not how sarcasmometer diagnostic tools work.

        2. Australia is one of the freest economies on the planet, Brazil has become a textbook case of Protectionism no-no thanks to what it did to its own computer-tech sector,

          https: // http://www.wsj. com/articles/how-latin-america -pays-the- price-of -protectionism- 1480089781
          http:// www .economist .com/node/ 21530144

          The best Performing South America economies, Chile, Peru, ~Columbia, are ones who embraced free trade.

          And India was ruined by socialism since the 1940s, only recently getting its act together after finally kicking out the party responsible. If their policies were at all functional all that time, it’s an open question why they weren’t already far better than China.

  4. Wanting fair trade agreements isn’t “protectionism”.

    1. Free trade IS fair trade. Stop thinking such Communistic thoughts.

    2. I guess that would depend on how you define “fair trade”. To me, “fair trade” is allowing me to conduct voluntary exchanges with whomever I choose, regardless of the other party’s origin, without regulatory or financial barriers/hindrances imposed by the government. So yeah, by that definition of fair trade, I agree with you. However, I suspect that isn’t what you meant by that phrase.

    3. Re: Davulek,

      Wanting fair trade agreements isn’t “protectionism”.

      Depends on what Trumpistas think is “fair”.

      All trades are fair. Two parties coming together to a trade believing (ex ante) they will benefit from the trade. But protectionists don’t want that kind of trade; they want one of the parties to forgo his or her interests for the interests of a protected group of people, be it unions, manufacturers or cronies. That’s the kind of “fair” Trumpistas are talking about.

      1. be it unions, manufacturers or cronies

        It’s all cronies, really. Some just have different membership structures.

  5. something any serious Hog rider could have told you

    Haha, I am also cool with those bikers.

  6. Yeah, we don’t need decent jobs for the lower classes! All we need is dirt cheap junk from China and nannies for the rich who make pennies an hour.

    1. Re: JeremyR,

      Yeah, we don’t need decent jobs for the lower classes!

      I am not sure who are these “we” you allude to but if the “lower classes” (whatever that means) want decent jobs, they should improve their kills first to be able to offer a better value for the dollar or fuck off.

      1. “Just learn to code” is the 2017 version of “Let them eat cake”.

    2. Cheap crap from China has allowed the lower classes to live higher on the hog than they would if they could only buy American.

      1. Protectionists never see that side of things.

  7. In other words, if President Trump tried to recreate past protectionist “successes,” he’d cause even more pain for even less gain.

    “The hell with it! We want American Juche!

    Juche! Juche! Juche!”

    /Trumpista

  8. The problem with free markets is, how do you guarantee my protection? You can’t! And that’s why freedom always loses! Because you can’t protect me from markets with free markets, biatch!

    1. ??? You want ‘protection from free markets’??
      Why? How?

      I just assume people who want protection from ‘free-market’ competition are just incompetent to compete on their own skills and merits.

      Hm?

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  11. I think that these are understandable theses of Trump and the government, on the introduction of increasing workplaces and industrial revival, since it is all a political game. As it was said in the article, there are many costs in the policy of protectionism: a possible reduction of competition or increase cronyism, on the US economy. I agree with many moments from the history of the economy, which I also used in my research on https://answershark.com/economics and yes, history abounds with examples of the failure of American protectionism.

  12. Trade is great as long as countries are on equal ground, but that doesn’t happen often. Maybe between countries like the USA, Canada and Western Europe it is fair. But trading with countries like China that subsidize their industries, have weak environmental laws, and grind their population into the dirt to get an economic whenever they need to are not “equal” market traders and special steps need to be taken to insure that it is fair trade.
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