Recent talk of tariffs, trade wars, and bygone eras of American production reflect a popular movement focused on a misplaced sense of renewal. Many believe this to be achievable through economic protectionism. Shouts of “fair trade" and protecting American jobs is merely the tip of the protectionist iceberg, it extends into every level of government.
That this is economic folly has been suspected since the days Adam Smith and David Ricardo. Quite notably, the French classical liberal Frédéric Bastiat also spoke eloquently and often against protectionism, most prominently in his satirical The Candlemakers’ Petition.
The weight of evidence on the economic scales tilts heavily against cronyism and towards liberal free trade. But perhaps most importantly, free trade, domestic and abroad, reinforces and sustains the rule of law, while protectionism undermines it.
The Rule of Law Is a Limit on Arbitrary Rule by the Few
There is much talk regarding the rule of law, a favorite of the pundit class, employed frequently from whatever political ideology. But, there are some core elements that can be traced through the evolution of this ideal since the inception. The first and oldest being a rebellion against the arbitrary rule of men.
One of the earliest formulations, from Aristotle, stated, “It is more proper that law should govern than any one of the citizens.” More recently, at the beginning of the nation’s founding, the second United States President, lawyer and diplomat, John Adams paraphrased the rule of law as “a government of law not of men.” John Locke, a pivotal influence for both English and American political philosophy and law, wrote that the rule of law required that one not be “subject to the inconstant, uncertain, unknown, and arbitrary wills of others.”
Often mistaken as mere obedience to law, the rule of law is primarily focused on constraining government and those who have access to political, and legal favoritism.
An admonition against arbitrariness and favoritism by those selected to govern animates many of the central principles associated with the rule of law. If a law fails to adhere to these principles—such as uniformity, rationality, equality, and notice—it fails to meet the ideal of the rule of law. Often mistaken as mere obedience to law, the rule of law is primarily focused on constraining government and those who have access to political, and legal favoritism. In this tradition, F.A. Hayek, as well as Bruno Leoni, recognized a distinction between law and legislation, legislation often failing to adhere to the underlying principles key to the rule of law and more subject to the arbitrariness of will.
Arbitrary Rule Encourages Rent Seeking and Lessens Equal Protection of Law
Adam Smith observed the mercantilism of his day and contrasted the government favors and the corruption they spawned against specialization and trade. The former, he claimed, failed to produce the wealth of the latter. This concern with mercantilism, or cronyism, was similarly reflected by concern of the early founders regarding corporations and monopolies, which were state created and endowed by their charters with exclusive rights to production and trade. Rights that prevented competition.
Though the corporate form has morphed over time many in business still procure government favor. This behavior, known as rent-seeking, is the product of protectionist rules which favor one person or entity over another. The economic incentive to find favor with the government rather than produce independently in the market resembles the aristocratic favoritism of Adam Smith’s time, and much like his time, the favor of government is an unequal distribution of state protection at the expense of everyone else.
The result is a decrepit economy and a corrupt law.
The result is a decrepit economy and a corrupt law. The few are favored at the cost of the many. The justifications may sound familiar. Perhaps an industry is “too big to fail” or “an economic necessity,” but the excuses often stack up the same, and the inequality in legal benefits yields the expected fruit of corruption and injustice.
Current tariffs have shown just that. Certain industries have, like an endangered species, been classified as worthy of protection. Some receive benefit due to favoritism and others due to the economic ignorance of those empowered to make the rules. The effect is the same. While a few may benefit many others suffer, those who most strongly feel the pinch of new tariffs and have the political clout to do so are now motivated to seek similar benefits. Consider the example of Carrier, the maker of air conditioning units, who appealed for relief after tariffs were levied in 2016. They found relief in the form of a tax break, though one with conditions that further intertwine interests with government.
Protectionism on Different Levels
Protectionism occurs at a more local level; all need not be national. Consider those who seek employment or to start a business but are limited by unfounded and irrational licensing laws. Laws which often require extensive education in unrelated subjects. The major benefactors are not the consumers but those who find protection from increased costs to enter a market and those who are able to extract a rent by providing the required courses or degree. This is a situation replicated across the country, such as a new DC regulation requiring a four-year degree for childcare workers or the numerous crackdowns on hair braiders, which require attendance at a cosmetology or barber school despite the lack of relevant hair braiding curriculum.
This disparate legal treatment, which has occurred across the country, favors the few well-connected at the expense of those without access to politicians and deep coffers.
Perhaps fewer recent examples of government favoritism stand out as the case of Suzanne Kelo, which garnered national attention. Kelo lost her home, along with her neighbors, for a potential development, which would potentially benefit the well-funded Pfizer corporation. The city favored new development over existing owners and used eminent domain to seize the land in expectation of higher tax revenue. In the end, the lot was never developed and remains empty, but this economic favoritism—the other side of the protectionist coin—demonstrates how the rule of law suffers when legitimate property owners are treated as second class in their rights next to the economically powerful. This disparate legal treatment, which has occurred across the country, favors the few well-connected at the expense of those without access to politicians and deep coffers.
A System of Inequality
It is this unequal legal treatment that harms the rule of law—this is a system built on relationships and proximity to power, of arbitrary will and favoritism. Those who have been deemed important in the eyes of government officials, and perhaps even in the eyes of a democratic majority, reap the rewards.
Much of this is aided by the judiciary, which is tasked with upholding the law. Yet in the areas of economic life, the judiciary has largely abdicated their duty to review legislation and decides only if a law or regulation is founded on a “rational basis.” This has turned into a low bar for governments to clear, one that has effectively permitted government to claim a property right on those they govern—that of granting and denying permission in the exercise of economic rights. This shifts a portion of economic activity to petitioning government as well as purchasing back those rights.
The sad irony is those who often rhetorically appeal to the rule of law have also adopted a bundle of incoherent protectionist views, regardless of their favored political party.
All forms of protectionism unavoidably undermine the rule of law.
But you can’t have it both ways. The rule of law is a constraint first on arbitrary rule. Allowing the government to openly side with selected industries, individuals, and businesses is to sow the seeds of degeneration. All forms of protectionism unavoidably undermine the rule of law.