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FREE TRADE OR PROTECTIONISM?
The Case Against Trade Restrictions
by Vincent H. Miller & James R. Elwood
The Lure of Protectionism
The argument for so-called "protectionism" (called "fair trade" by
some) may at first sound appealing. Supporters of "protectionist" laws claim that keeping out foreign
goods will save jobs, giving ailing domestic industries a chance to recover and prosper, and reduce the
trade deficits. Are these claims valid?
Protectionism: What It Costs
Classical Liberal philosopher John Stuart Mill astutely observed in
the last century that "Trade barriers are chiefly injurious to the countries imposing them." It is
true today as it was then, for the following reasons:
LOST JOBS: Protectionist laws raise taxes (tariffs) on imported
goods and/or impose limits (quotas) on the amount of goods governments permit to enter into a country.
They are laws that not only restrict the choice of consumer goods, but also contribute greatly both to
the cost of goods and to the cost of doing business. So under "protectionism" you end up poorer, with
less money for buying other things you want and need. Moreover, protectionist laws that reduce consumer
spending power actually end up destroying jobs. In the USA, for example, according to the US
Department of Labor's own statistics, "protectionism" destroys eight jobs in the
general economy for every one saved in a protected industry.
HIGHER PRICES: Japanese consumers pay five times the world
price for rice because of import restrictions protecting Japanese farmers. European consumers pay
dearly for EC restrictions on food imports and heavy taxes for domestic farm subsidies. American
consumers also suffer from the same double burden, paying six times the world price for sugar because
of trade restrictions (to give but one example). The US Semiconductor Trade Pact, which pressured
Japanese producers to cut back production of computer memory chips, caused an acute worldwide shortage
of these widely used parts. Prices quadrupled and companies using these components in the production
of electronic consumer goods, in various countries around the world, were badly hurt.
HIGHER TAXES: Protectionist laws not only force you to pay
more taxes on imported goods, but also raise your general taxes as well. This is because governments
invariably expand their Customs Department bureaucracies to force compliance with their new rounds of
trade restrictions (or in the case of NAFTA, trade regulations). These bureaucrats must be paid. There
is also the expense of more red tape and paperwork for trading companies and more harassment of
individual travelers passing through the borders.
THE DEBT CRISIS: Western Banks are owed hundreds of billions
of dollars by Eastern European and Third World countries. Trade restrictions by Western governments,
however, have cut off Western markets for these countries, making it virtually impossible for them to
earn the hard currencies necessary to repay their loans. This increases the very real possibility of a
collapse of the world banking system.
Protectionism: Who Gains?
In spite of evidence of damage caused by trade restrictions, pressure
for more "protectionist" laws persists. Who is behind this, and why?
Those who gain from "protectionist" laws are special-interest groups,
such as some big corporations, unions, and farmers' groups – all of whom would like to get away
with charging higher prices and getting higher wages than they could expect in a free marketplace.
These special interests have the money and political clout for influencing politicians to pass laws
favorable to them. Politicians in turn play on the fears of uninformed voters to rally support for these laws.
THE LOSERS? YOU and all other ordinary consumers. Your freedom is
being trampled into the dust by these laws, and you are literally being robbed, through taxes
and higher prices, in order to line the pockets of a few politically-privileged "fat cats."
"Protectionism is a misnomer. The only people protected by tariffs, quotas and trade
restrictions are those engaged in uneconomic and wasteful activity. Free trade is the only
philosophy compatible with international peace and prosperity."
Walter Block
Senior Economist, Fraser Institute (Canada)
Trade Wars: Both Sides Lose
When the government of Country "A" puts up trade barriers against the
goods of Country "B", the government of Country "B" will naturally retaliate by erecting trade barriers
against the goods of Country "A". The result? A trade war in which both sides lose. But all too often
a depressed economy is not the only negative outcome of a trade war . . .
When Goods Don't Cross Borders,
Armies Often Do
History is not lacking in examples of cold trade wars escalating into
hot shooting wars:
- Europe suffered from almost non-stop wars during the 17th and 18th centuries, when restrictive
trade policy (mercantilism) was the rule; rival governments fought each other to expand their empires
and to exploit captive markets.
- British tariffs provoked the American colonists to revolution, and later the Northern-dominated
US government imposed restrictions on Southern cotton exports – a major factor leading to the
American Civil War.
- In the late 19th Century, after a half century of general free trade (which brought a
half-century of peace), short-sighted politicians throughout Europe again began erecting trade barriers.
Hostilities built up until they eventually exploded into World War I.
- In 1930, facing only a mild recession, US President Hoover ignored warning pleas in a petition
by 1028 prominent economists and signed the notorious Smoot-Hawley Act, which raised some tariffs to
100% levels. Within a year, over 25 other governments had retaliated by passing similar laws. The
result? World trade came to a grinding halt, and the entire world was plunged into the "Great Depression"
for the rest of the decade. The depression in turn led to World War II.
The #1 Danger To World Peace
The world enjoyed its greatest economic growth during the relatively
free trade period of 1945-1970, a period that also saw no major wars. Yet we again see trade barriers
being raised around the world by short-sighted politicians. Will the world again end up in a shooting
war as a result of these economically-deranged policies? Can we afford to allow this to happen in the
nuclear age?
"What generates war is the economic philosophy of nationalism: embargoes, trade and
foreign exchange controls, monetary devaluation, etc. The philosophy of protectionism is
a philosophy of war."
Ludwig von Mises
The Solution: Free Trade
A century and a half ago French economist and statesman Frederic
Bastiat presented the practical case for free trade: "It is always beneficial," he said, "for a nation
to specialize in what it can produce best and then trade with others to acquire goods at costs lower
than it would take to produce them at home." In the 20th century, journalist Frank Chodorov made a
similar observation: "Society thrives on trade simply because trade makes specialization possible, and
specialization increases output, and increased output reduces the cost in toil for the satisfactions
men live by. That being so, the market place is a most humane institution."
What Can You Do?
Silence gives consent, and there should be no consent to the current
waves of restrictive trade or capital control legislation being passed. If you agree that free trade
is an essential ingredient in maintaining world peace, and that it is important to your
future, we suggest that you inform the political leaders in your country of your concern regarding
their interference with free trade. Send them a copy of this pamphlet. We also suggest that you write
letters to editors in the media and send this pamphlet to them. Discuss this issue with your friends
and warn them of the danger of current "protectionist" trends. Check on how the issue is being taught
in the schools. Widespread public understanding of this issue, followed by citizen action, is the only
solution. Free trade is too important an issue to leave in the hands of politicians.
"For thousands of years, the tireless effort of productive men and
women has been spent trying to reduce the distance between communities of the world by reducing the
costs of commerce and trade.
"Over the same span of history, the slothful and incompetent protectionist has endlessly
sought to erect barriers in order to prohibit competition – thus, effectively moving
communities farther apart. When trade is cut off entirely, the real producers may as well
be on different planets.
"The protectionist represents the worst in humanity: fear of change, fear of challenge,
and the jealous envy of genius. The protectionist is not against the use of every kind of
force, even warfare, to crush his rival. If mankind is to survive, then these primeval fears
must be defeated."
Ken Schoolland
Former US International Trade Commission Economist,
and Trade Advisor to the White House
Member of ISIL's Board of Directors
Vincent H. Miller is the founder and President of the International Society for
Individual Liberty.
James R. Elwood is Vice-President of the International Society for Individual
Liberty.
This pamphlet was originally published in 1988.
It is part of ISIL's educational pamphlet series. Click here for the full index of pamphlets online.
All ISIL educational pamphlets are available in hard copy for 5¢ each. Click here for the ISIL Store.
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