The Mistakes Of The Past

Former Delaware governor Pete DuPont has an excellent piece in The Wall Street Journal on the dangers of protectionism. DuPont notes that the last major exercise in American protectionism was the Smoot-Hawley Tariff, a bill that created a global trade meltdown and was one of the major contributing factors to the Great Depression.

The fact remains that we all benefit from outsourcing. The myth of protectionism is that the hand of government can stop the creative destruction of a changing economy. Attempts to do so invariably fail. One needs only look to recent history to see why, as DuPont finds:

President Bush’s steel tariffs saved the jobs of 5000 U.S. steel workers, but caused higher steel prices that eliminated 23,000 jobs in steel-consuming industries. Should similar tariffs be imposed on other product imports?

For those who argue that outsourcing hurts the poor, would they care to raise the cost of consumer goods in order to protect a handful of textile jobs? When a family on the poverty line that can barely make ends meet as it is suddenly sees the costs of clothes for their children jump by 50%, where are they going to turn? Should millions be punished in order to protect one specific group? The correct answer is clearly no.

The second major myth of protectionism is that jobs will stay in the US if protectionist measures are passed. If a computer company can’t afford to pay American workers $15/hour to do tech support they aren’t going to suddenly be able to do so because the government tells them to. Instead, they’ll simply stop operating tech support at all. Those jobs aren’t going to come back regardless of what the government does – and invariably the costs of protectionism outweigh the benefits.

There’s something to be said about buying American, so long as it is an individual choice. If people want to pay more for an American product, then they are more than welcome to do so. However, using the power of government to coerce someone into buying American products won’t save jobs, it will cost them. When the economy is in a tenous but growing recovery, the last thing we need is a trade policy that would cost millions of Americans their jobs on the myth that protectionism is a good idea. It was wrong with the Smoot-Hawley Tariff and it is just as wrong now.

4 thoughts on “The Mistakes Of The Past

  1. America still sells goods? I thought that was just a Learning Channel show.

    Seriously, every one around here is mad at Walmart for selling cheap foriegn clothing instead of american clothing goods, but can someone please show me where american made clothing is on sale. Famous Barr, Target, Kohls…look at the tag. Chances are it won’t say Made in America.

  2. Friends, this is the Internet Age! If you’re looking for American Made Clothes, do a search! I just did, and result number one is a site called The American Style Directory, a directory of online retailers with American made clothes.

    With respect to Jay’s remarks on protectionism, this is just silliness. Smoot-Hawley was passed in 1931, well after the stock market crash in 1929 which tipped us and the rest of the world into depression.

    When it was passed, it was denounced as storm-cellar isolationism, but this was pure political rhetoric. In 1931, imports accounted for something like 4% of GNP, and little more than a quarter of those imports were dutiable in any event.

    Perhaps Jay and Pete believe that a marginal increase in duties on goods representing less than 1.5% of our GNP represents a “major exercise in American protectionism,” but it is downright comical to assert that it could have caused a “global trade meltdown.”

    Now, while it’s true that protectionist legislation is almost invariably the product of political logrolling, backscratching, and grandstanding, more so than any patriotic sentiment by elected representatives, this in no way serves as a defense of our unilateral disarmament in the face of the predatory industrial policies of other nations. And what we now laughingly refer to as “free trade,” is nothing of the sort. Simply removing all fetters on trade between three nations could be accomplished with a one page document with three signatures at the bottom, but we all know that NAFTA (for instance) is a 20,000 page behemoth bursting at the seams with sweetheart deals for interested and well-connected parties.

    As far as the benefits accruing to the poor as a result of “cheap foreign imports,” perhaps you might put on a $250 pair of Nikes sewn by destitute peasant girls, and try your argument out again. This time, with feeling.

    And that computer company that can’t afford to pay $15 an hour? Time was, they would be forced to innovate, to devise new strategies, to be cleverer than the other fellow, and create new technologies to keep us at the cutting edge and the envy of the world. Now they just drag out the padlocks and ship it all off to Bangalore. This is a plus for our economy? To trade innovation for a mindless scavenger hunt for the cheapest of the cheap?

    Since the current administration (and the preceding one) is completely invested in more of the same stupidity, the future is bleak in my view. But you’re right about one thing, Jay:

    There’s something to be said about buying American!

  3. The Smoot-Hawley Tariffs were passed in 1930, not 1931. Because of the tarriffs, global trade dropped by 66%. US exports to Europe dropped from $2.3 billion to only $784 million, putting thousands of people out of their jobs, and spreading the effects of the Depression worldwide.

    Millions of Americans’ livlihoods depend on trade. The effects of protectionism would be to plunge the US economy into deep recession and cause us to lose millions of jobs. Not only that, but the costs of goods would dramatically increase, meaning that families on the poverty line would have to choose between food or clothing.

    The costs of protectionism is simply more than we can afford.

    Oh, and for the record, there’s no way in hell I’d ever pay $250 for a pair of Nikes…

  4. Granted, Smoot-Hawley was passed in 1930, but was not implemented until 1931. Nevertheless, it’s revisionism to claim it caused or even exacerbated the Great Depression. Even after Smoot-Hawley, tariffs were lower overall than they were through most of the Industrial Revolution, a period of unparalleled American economic growth.

    Be that as it may, there is a broad middle ground between “economic isolationism” and laissez-faire trade. Yes, many Americans’ livelihoods depend upon trade, but the Founding Fathers empowered Congress to “regulate international commerce,” a task which it seems might conceivably be accomplished to salutary effect. Our modern Congress has dumped Jefferson, Hamilton, and Madison in favor of twisted reinterpretations of Smith, Ricardo, and Schumpeter, and effectively ceded their constitutional duty, but the fact remains that protectionism is as American as apple pie, and furthermore, it works.

    For example, China’s economy is outpacing the United States’ in nearly every conceivable measurement, this despite their notoriously closed markets. Why? Is communism superior to capitalism? Is it the Buddhist work ethic? What?

    It’s no great mystery. They, like India, open their markets as it suits them and close them by the same rule, as countless nations have done since time immemorial. I keep hearing, “if the Chinese do it better, let them do it. That’s their comparative advantage.” But they don’t do it better. They do it cheaper. They manipulate their currency to gain an advantage and dominate in manufacturing, and we’re supposed to believe that this indicates our manufacturing is now expendable, or even anachronistic? As if the vagaries of currency valuations are any basis upon which to trash entire industries.

    Most bothersome is China’s continued utilization of slave labor, child labor, and other such “efficiencies” we claim to abhor. This is doing it better? This is creative destruction? Destruction perhaps, but there is nothing creative about it. Slavery is as old as time. And in the most perverse interpretation of “freedom” in the annals of history, we Americans, we de facto slaveholders, we pound our little fists on the global marketplace countertop and demand the “freedom” to save a dollar on a pair of sneakers made by slaves!

    But let’s not worry about all that. Protectionism is too much to be feared. And we have to protect the poor from the high price of big screen TVs and domestic wines. So let’s sacrifice the beleaguered middle class. They were stupid enough to train for a high tech job after the plant closed, so maybe they’ll be stupid enough to train for cleaning out bed pans when the high tech jobs disappear.

    Or perhaps you have an answer to the question, “if the comparative advantage of China and other nations is that they can work so cheaply that the greater productivity of American workers is rendered immaterial, on what basis do we compete?”

    Just to make this fair, I’ll advise you not to suggest cutting wages, because chest-thumping protectionists like me will point out that lower wages are a poor method for achieving a higher standard of living, and that by suggesting such a thing you have just fired the starter pistol for another leg of the Race to the Bottom.

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