A Protectionist Utopia?
by Pierre Lemieux
If everybody were protected as a producer, nobody would be “protected” as a consumer.
My previous post argued against the “populist argument” claiming that free trade destroys jobs and thus cannot be beneficial to consumers who have lost their jobs and incomes. The basic answer is that trade does not destroy jobs and, in fact, has little to do with employment.
One could object that this answer does not cover the whole populist argument (as a few commentators did). The broader question may be: Couldn’t the individual, who is generally both a producer and a consumer, benefit from price competition on what he buys and, at the same time, get protection against competition in what he produces? Couldn’t individuals get both competitive consumer prices and secure jobs against the choices of other consumers (who destroy jobs by switching suppliers)?
The short answer is no. Such a utopian system is impossible. It is impossible for all individuals to simultaneously benefit from price competition as consumers and, as producers, from protection against competition. Price competition requires that firms and workers compete for their markets and their jobs. This competition for the patronage of consumers implies continuous disruption of production. A totally protectionist world cannot enjoy competitive prices because, by definition, people are banned from buying at the lowest prices that can be quoted on the market. If everybody were protected as a producer, nobody would be “protected” as a consumer.
What is feasible, however, is for some groups of individuals to be granted special protectionist measures in their interest while they are still allowed to import what they want without protectionist barriers. This is what special interests obtain. An American sugar producer or solar panel manufacturer is protected by special quotas or tariffs against foreign competitors, but he is still allowed (to a large extent) to make world producers compete for the other goods he consumes, such as cars from Canada or flat screens from Mexico.
We can complicate the argument but it won’t change water into wine. One way to make apparent economic sense of the populist argument is to observe that free international trade will not literally benefit all individuals: just as in the case of domestic trade and competition, some individuals will be economically harmed. In other words, more free trade is optimal in the Marshallian sense (maximizing net benefits across all individuals as benefit-cost analysis tries to do), but it is not Pareto-optimal (it is not generally true that it harms nobody at all). Moving from protectionism to free trade is likely to harm some individuals. Most critical comments on my previous posts seemed to take that stand.
This is true enough, but the same reasoning indicates that protectionism is not Paareto-optimal either, for a move towards more protectionism will also harm some individuals. New tariffs on washing machines, as Whirlpool is requesting, harm households. Quotas on sugar harm not only consumers who like sugar, but also the domestic manufacturers of sweets, who have to compete against foreign manufacturers with access to cheaper sugar. And so forth. (The economics student will have noted that, to use the economic concepts correctly, I should have said that a move towards protectionism is not more a “Pareto improvement” than a move towards free trade, but this does not change the argument.)
Moreover, as noted above, protectionism is not even optimal in the Marshallian sense, because more goods and services become available under free trade. In non-technical jargon, the difference between free trade and protectionism is that the former promotes general prosperity, while restrictions to exchange reduce opportunities as the history of underdevelopment suggests.
That free international trade benefits most people, that it increases general prosperity, can be grasped with a reductio ad absurdum. If protectionism were good between countries, it would also be good between states, regions, towns, etc. It would be worth protecting California against Mississippi, if only because wages are 39% lower in Mississippi than in California. “If it could save only one job…” is as bad an argument against international competition as against domestic competition. Protectionist measures do favor some individuals, but it is at the high cost of reducing opportunities for most individuals. And even those who seem to benefit from protectionism, or their children, are likely to lose out in the long run.
Pierre Lemieux is an economist affiliated with the Department of Management Sciences of the Université du Québec en Outaouais. His forthcoming book, to be published by the Mercatus Center at George Mason University, will aim at answering common objections to free trade. Email: PL@pierrelemieux.com.