All Commentary
Friday, December 1, 1995

A Trade Policy for Free Societies: The Case Against Protectionism

Protectionism Benefits Special Interests at Average Americans' Expense

For over two centuries, economists have argued that protectionism is a policy designed to “protect” not consumers and workers at large but special interests, namely, inefficient domestic firms and their often highly paid and unionized labor forces. “Protecting the American economy” from cheap foreign imports of agricultural products, apparel, and pharmaceuticals, for instance, means creating a greater scarcity and increasing the prices of food, clothing, and medicine in the United States.

Robert McGee’s book clearly and concisely drives home the point that protectionism is a species of monopoly privilege that benefits special interest groups at the expense of the average American. The first section, the “Philosophy of Protectionism,” ruthlessly exposes and refutes the web of misconceptions and fallacies that lie at the heart of the protectionist case. McGee not only sets forth and then demolishes, one by one, 17 of the most common arguments in favor of protection, but also presents the positive arguments for free trade. Unlike most economists writing on the subject, McGee does not limit himself to expounding the “utilitarian” or efficiency aspects of the free trade case, as important as this task obviously still remains. He also emphasizes its ethical dimension, in particular the fact that “The moral basis of free trade is property rights.”

In Part II of the book, McGee undertakes an assessment of the crushing “Cost of Protectionism” borne by American consumers and workers. He provides a useful summary of recent studies that have attempted to estimate the monetary costs of protectionist policies, in the form of higher prices and misallocated resources, both for the economy as a whole and for individual industries. For example one study estimated that, in 1986 alone, protectionist policies cost U.S. consumers about $65 billion in higher prices. Another study reckoned that Reagan’s “voluntary export restraints” on Japanese auto manufacturers cost American car buyers $14 billion in 1984 alone. Various analyses have also indicated that protectionism raises the price of clothing to American consumers by between 39 and 76 percent for imported items, which in turn facilitates a 19 to 46 percent increase in the price of domestic apparel. Perhaps the most egregious example is sugar. Protection of this industry has forced Americans at times to pay up to four times the world price for sugar. Nor does the author overlook the nonmonetary costs of protectionism in terms of lost jobs, the social conflict and squandered resources involved in lobbying for or against various protectionist measures, the reduction of consumer choice, and the attenuating of individual rights of property and contract.

The third and final part of the book is devoted to an analysis of “Antidumping Policy.” Especially enlightening is McGee’s exposé of the shocking arbitrariness inherent in the administration of the antidumping laws.

Concluding a blistering and well-deserved critique of the intellectually bankrupt philosophy of antidumping policy in chapter 10, McGee writes:

Antidumping laws cannot be justified by any theory of liberal democracy. They are not utilitarian because they do not result in the greatest good for the greatest number. Indeed they provide good for the minority (producers) at the expense of the greatest number (consumers). They reduce rather than enhance social cooperation and harmony. They violate rights. Even redistributionists would argue against them because they redistribute income in the wrong direction—from the poor and the middle classes to the rich. There is no rational reason why antidumping laws should exist.

There are a few minor flaws in the book. For example, McGee’s novel accounting analysis of the trade deficit, presented in chapter 2, is not well grounded in economic theory: it attempts to quantify and interpersonally aggregate the gains from trade and conceives these gains as dependent on the gross profit rates of the participating firms, which are arbitrarily assumed to be equal. Without this unrealistic assumption, similar hypothetical arithmetic examples could easily be constructed that purport to prove that “trade deficits are bad” for the United States. Overall, however, this book is well worth a read by anyone, including the professional economist, seriously interested in understanding and possibly contributing to the intensifying debate over what constitutes an economically optimal—and ethical—trade policy for the United States. []

Dr. Salerno is Professor of Economics at the Lubin School of Business, Pace University, New York City.