How To Argue With A Trade Protectionist

Daniel Mitchell, writing at Forbes, poses eight questions to protectionists. This is great stuff by and large, although I can’t sign off on all eight of these questions. Mitchell’s arguments are a reminder to me how difficult it is being a liberal free trader. Unfortunately many of my fellow free trade enthusiasts turn out to be libertarian types whose opinions on other issues make me very uncomfortable.

Let’s have a quick look.

Question 1: Do you think politicians and bureaucrats should be able to tell you what you’re allowed to buy?

This has obvious appeal to the libertarian set as it poses the issue in terms of personal freedom. These are the same people in the U.S. who passionately believe that their ability to purchase incandescent light bulbs is something akin to a God-given right.

Nevertheless, Mitchell’s question is a good one in terms of imports versus domestic products. Unless there is a good reason (e.g. product safety), I don’t think the government should get in the way of that purchasing decision. All else being equal, therefore, why should the government force us to buy a domestic product just to make a domestic producer happy?

Question 2: If trade barriers between nations are good, then shouldn’t we have trade barriers between states? Or cities?

This is probably my favourite one. Generally speaking, if you’re willing to sign up for protectionism in the international context, then why shouldn’t those barriers be allowed within nations? If the answer relates at all to efficiency, then you (protectionist) are in trouble, from an argumentation standpoint.

The other day, I saw a clip of an interview Jon Stewart (The Daily Show) conducted with former Michigan Governor Jennifer Granholm. She talked about how some of the competition between States in the U.S., including tax subsidies to businesses, is very inefficient. Seems to me like this translates internationally as well.

Question 3: Why is it bad that foreigners use the dollars they obtain to invest in the American economy instead of buying products?

Or to put it another way, is that capital surplus a bad thing? Many protectionists will instinctively not like it when foreigners purchase domestic assets. The recent rumour of a Chinese group trying to bid for the LA Dodgers baseball team comes to mind.

To me, this is about reciprocity. If we want countries like China to open up to foreign investment, then those nations need to welcome Chinese investment. And if that doesn’t sound good, isn’t inward foreign investment a sign that your economy (and economic future) is attractive? Seems like a good thing to me.

Question 4: Do you think protectionism would be necessary if America did pro-growth reforms such as a lower corporate tax rate, less wasteful spending, and reduced red tape?

OK, here is where I start to part company with Mr. Mitchell. If you aren’t familiar with U.S. politics, “pro-growth reforms” is a Republican code phrase. Mitchell doesn’t hide behind it (unlike many politicians), and admits that it means lower taxes, less regulation and lower spending. In other words, the basic Republican agenda.

Obviously I don’t agree that I have to be a Republican to believe in free trade. Indeed, Mitchell’s attempt to tie the two things together is pretty weak. Consider if we substituted the term “industrial policy” for “pro-growth reforms.”

As some very smart folks have said, the U.S. would be more competitive if it adopted an industrial policy. This would obviate the “need” for protectionism without adopting the “race to the bottom” Republican policies touted by Mitchell.

Question 5: Do you think protectionism would help, in the long run, if we don’t implement pro-growth reforms?

Superfluous question given #4. Not sure why Mitchell put it in here. Maybe he wanted to ensure that he ended up with eight questions? It is a lucky number, after all.

Question 6: Do you recognise that, by creating the ability to offer special favours to selected industries, protectionism creates enormous opportunities for corruption?

Excellent. This is Political Economy 101 and is a great argument against protectionism. The Lefties who usually argue for trade barriers are also critics of corporate cronyism, and yet the policies they argue for result in rent seeking.

Question 7: If you don’t like taxes, why would you like taxes on imports?

Actually, I don’t mind taxes. Protectionists on the political Left won’t be at all swayed by this argument. Next?

Question 8: Can you point to nations that have prospered with protectionism, particularly when compared to similar nations with free trade?

Mitchell probably should have included a time frame in this question, because many countries have prospered for a short time with protectionist policies, but I’m quibbling. Certainly China is a good example here. The growth seen here since the late 1970s is undeniable. (I would also point out that this is a good argument for having an industrial policy – see Question 4).

Right then. Some good arguments to use the next time you’re stuck in an elevator with a protectionist. Works best on Libertarians.

© Stan for China Hearsay, 2011. | Permalink [No comment [Add to
Post tags: free trade, industrial policy, protectionism

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