Is protectionism a worthy goal? Should we endeavor to put up barriers to international trade in order to benefit national producers? Economist Hans-Hermann Hoppe explains the main argument of protectionists:
“The central argument advanced in favor of protectionism is one of domestic job protection. How can American producers paying their workers $10 per hour possibly compete with Mexican producers paying $1 or less per hour? They cannot, and American jobs will be lost unless import tariffs are imposed to insulate American wages from Mexican competition. Free trade is only possible between countries that have equal wage rates and thus compete ‘on a level playing field.'”1
In my opinion, these arguments are quite weak. To begin with, from a purely natural rights perspective, it is clear that attempted barriers to free trade violate the rights of the individual. As economist Frederic Bastiat explains:
“Exchange, like property, is a natural right. Every citizen who has produced or acquired a product should have the option of applying it immediately to his own use or of transferring it to whoever on the face of the earth agrees to give him in exchange the object of his desires. To deprive him of this option when he has committed no act contrary to public order and good morals, and solely to satisfy the convenience of another citizen, is to legitimize an act of plunder and to violate the law of justice.”
Besides this argument against protectionism, there are numerous other practical arguments that disprove the claims of the protectionist. In the remainder of this post, I want to focus on a single one of these arguments, namely the argument based on the logical conclusion of protectionist ideology.
The Logical Conclusion of Protectionism
Hoppe succinctly explains this fundamental problem with protectionism, “Any argument in favor of international protectionism rather than free trade is simultaneously an argument in favor of interregional and interlocal protectionism.” Note what Hoppe is saying here: if national economies benefit from restricting international trade, then surely regional and local economies must also benefit from restricting interregional and interlocal trade.
Economist Walter Block explains this argument further, “The premise which justifies protectionism on the national level also justifies it on the state level… Theoretically, any one state could justify its policy in exactly the same way that a nation can. For example, the state of Montana could bar imports from other states on the grounds that they represent labor which a Montanan could have been given but was not. A ‘Buy Montana’ program would then be in order.”
Now, you might be read this argument and think little of it since some large states might be economically equipped to support themselves. But Block continues the reasoning of this argument, “The argument, however, does not end at the state level. It can, with equal justification, be applied to cities. Consider the importation of a baseball glove into the city of Billings, Montana. The production of this item could have created employment for an inhabitant of Billings, but it did not. Rather, it created jobs, say, for the citizens of Roundup, Montana where it was manufactured.” Should we, then, prevent intercity trade? The inhabitants of Billings would surely prefer to have more work and thus, make more money.
Block concludes the logic of this argument:
“We would have to conclude that [the benefits of protectionism apply] even to individuals. For clearly, every time an individual makes a purchase, he is forgoing the manufacture of it himself. Every time he buys shoes, a pair of pants, a baseball glove, or a flag, he is creating employment opportunities for someone else and thereby, foreclosing those of his own. Thus the internal logic of the… protectionist argument leads to an insistence upon absolute self-sufficiency, to a total economic interest in forgoing trade with all other people, and self-manufacture of all items necessary for well-being.”
When taken down to the smallest trading unit — the individual — it is clear that protectionist thinking must advocate for pure self-sufficiency and the complete absence of any trade whatsoever. Does this sound reasonable? Criticizing this viewpoint, Block writes:
“Clearly, such a view is absurd. The entire fabric of civilization rests upon mutual support, cooperation and trade between people. To advocate the cessation of all trade is nonsense, and yet it follows ineluctably from the protectionist position. If the argument for the prohibition of trade at the national level is accepted, there is no logical stopping place at the level of the state, the city, the neighborhood, the street, or the block. The only stopping place is the individual, because the individual is the smallest possible unit. Premises which lead ineluctably to an absurd conclusion are themselves absurd. Thus, however convincing the protectionist argument might seem on the surface, there is something terribly wrong with it.”
The Value of Trade
Is it advisable for a single nation to produce every single product that it consumes? What about regions? What about cities? What about individuals? Would you want to have to personally create every single item that you use? Is specialization and trade of any benefit to society? It seems clear that specialization allows nations and individuals to produce the products that they are most capable of making. As Block notes, “If not for specialization, each person would be forced to manufacture [every item] by himself.”
Fundamentally, the protectionist argument misunderstands the nature of trade. The protectionist line of thinking views trade as a struggle between importer and exporter, which is simply not correct. If done voluntarily, trade benefits both the supplier and the buyer, with the buyer obtaining an item that he could not have easily made and the supplier obtaining some amount of monetary compensation. This is not exploitation by any means.
Does the absence of protectionist policies mean that all jobs within one nation will be protected? Clearly not, since some nations will naturally be better at producing various items than others. The fact that Mexican producers, to use the example from the beginning of this post, are able to make a particular product at a lower cost than American producers likely means that these Mexican producers are most suited to make said product.2
Although there are many additional convincing arguments against protectionism which I did not cover in this post, understanding the logical conclusion of protectionist ideology is a good place to start in critiquing this viewpoint. Block summarizes his criticism of restrictions on free trade:
“With specialization, each person can limit his productive efforts to those areas he performs best in. But trade is the linchpin that holds this system together. Without the possibility of trade, people would amass enormous quantities of unusable safety pins, paper clips, or whatever. Without the possibility of trade, the incentive for specialization and the division of labor would be gone. Everyone would be forced back into the suicidal attempt to become self-sufficient.”
- These arguments in favor of protectionism are rarely applied to an entire nation’s economy. Most arguments in favor of protectionism are strictly applied to certain industries. Therefore, even through the manner in which these arguments are used some of the inconsistencies of this position are exposed.
- This example presupposes no government involvement in the economy, which is likely not the case. Government interventions in form of taxation and regulations will often create an unfair playing field upon which nations must compete. However, the correction to this inefficiency is not to create another inefficiency in the form of protectionist legislation. In order to allow nations to compete on equal footing, we must remove this government interferences, rather than impose greater government interferences in the form of protectionist legislation.