Why Protectionism Doesn’t Work – Yet Again

I’ve long stated that protectionist measures don’t save jobs, they simply shift the losses to different industries. As the London Telegraph reports this is exactly what happened with Bush’s steel tariffs.

Steel tariffs imposed by the US in an attempt to save jobs have merely increased unemployment among car workers, say economists.

Just 18 months after President George Bush agreed to 30pc tariffs on foreign steel, American companies that buy steel say they are suffering from higher costs.

A study by the US International Trade Commission, a non-partisan government body, into the effects of the tariffs offers a damning conclusion.

Although there have been some gains for steel producing areas, overall the effect on the US economy has been a loss to GDP of $30m (£18m).

Carmakers reacted with fury to the tariffs, coming at a time of crisis for the industry when it could ill afford to pay extra for homemade steel.

The report suggests that between 20,000 and 40,000 car job losses can be attributed to the steel tariff.

This just shows the macroeconomic consequences of protectionism. If you try to pass policies that “save” jobs for one industry you set in motion losses in other related industries. Trying to raise tariffs on steel hurts car manufacturers and builders, forcing them to pay higher costs and lay off workers. Textile tariffs raise prices for clothing, a burden that naturally falls disproportunately on those who can least afford increases in prices.

Furthermore, the article notes that steel jobs are still being lost because the losses in the steel industry had nothing to do with trade. There is a major overcapacity in the steel market, and the problems in the steel industry in the United States are not confined to the US. China, Russia, Japan, and Brazil have also lost steel jobs because of the worldwide economic slowdown. When demand goes down and production increases you naturally have a situation in which jobs are going to be lost. Domestically, steel isn’t used nearly as much as it once was as plastics, composites, and other metals are taking the place of steel for many uses.

The fact was that Bush’s steel tariff policy was one of the biggest mistakes of his Presidency, and is a policy that could well hurt him in key swing states. Protectionism did not work in the past, and it does not work now. Every policy has consequences, and trying to craft policies that privilege one group over another are rarely sound. Bush has been rightly pushing other countries to embrace free trade – and he should have listened to his own good advice rather than sacrificing thousands of jobs for a false sense of political expediency.

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