Protectionism: A Threat to Individual Freedom

Stephen Lai is a senior at Wichita Collegiate School, Wichita, Kansas.

The rising protectionist sentiment threatens the consumer’s right to choose among competing goods and services. This basic right, along with such civil rights as freedom of speech and religion, must be defended or else the government becomes a threat to all individual liberties.

Protectionism takes several forms, all of which violate consumer freedom of choice. Tariffs are the most frequently cited example. In an effort to save Harley-Davidson, the U.S. recently raised the duty on foreign motorcycles from 4.4 per cent to 49.4 per cent.[1] Along with tariffs, protectionist policies have grown to include import quotas on foreign goods and government subsidies to U.S. industries. Other forms of protection include regulations and standards on foreign imports, and government procurement policies which favor the purchase of domestic products.

Protectionism has its roots in the mercantilist period of the sixteenth to eighteenth centuries. Mercantilist legislation was based on the theory that a nation gains wealth only by exporting its products. This completely overlooks consumers and their needs. In the nineteenth century, the Corn Laws of Great Britain provided a tariff barrier against foreign grains, and caused untold suffering among the poorer masses.

U.S. tariffs originally accounted for 92 per cent of Federal revenue.[2] In more recent years, the percentage has fallen to around 1 per cent.[3] The decline in percentage was caused by an increase in the sources of government revenue, not by a reduction in tariffs. The Smoot-Hawley Tariff Act of 1930 raised U.S. tariff barriers to their highest levels, which provoked foreign retaliation resulting in a disastrous plummet in international commerce. As Ronald Reagan stated, the tariff “helped plunge this nation and the world into a decade of depression and despair.”[4]

Currently the textile, steel, shoe, and electronics industries are petitioning the government for protection from foreign imports. U.S. producers also call for raising a protectionist wall against the “flood” of Japanese products and retaliation against Japanese protectionism. The U.S. limits Japanese car imports and still restricts carbon steel imports to one-fifth of the market, because the Japanese subsidize industries such as their machine tool manufacturers and charge a 15 per cent to 20 per cent duty on plywood imports.[5] About 180 trade protection bills are being considered by the House of Representatives, and over 300 in the Senate.[6] With more special- interest legislation interfering with the market, the forgotten consumer pays higher prices for fewer goods.

Protectionism has evolved because of the notion that exports are good and imports are bad. Many people mistakenly believe that every transaction must have a winner and loser, despite the fact that people trade because, in their own eyes at least, each expects to gain. Protectionists therefore advocate a “balance of trade” based upon equal sales to both nations.

Industries argue for protectionist policies to allegedly protect consumers from low-quality foreign items and to insure their employees’ jobs. These companies disguise their true purpose of gaining security through the elimination of competition.

Many domestic companies demand trade protection because of unfair “underselling” by foreign nations. These arguments are absurd because the very nature of the market is to provide goods at a lower price than the competition. Protectionists then claim that foreigners’ trade policies are restrictive and are just cause for retaliation, but such policies serve no purpose other than revenge. While retaliation could result in economic disaster like the Smoot-Hawley Tariff, a nation that chooses not to retaliate provides the consumer with the benefits of free choice, and makes a gesture that helps establish friendly relationships.

Advocates of protectionism overlook the benefits of specialization and comparative advantage. Because resources are scarce, consumers are best served when labor, capital, and raw materials are channeled toward the most productive industries. Trade barriers interrupt this process. As Ludwig von Mises stated, “All that a tariff can achieve is to divert production from those locations in which the output per unit is higher to locations in which it is lower. It does not increase production; it curtails it.”[7] The market, and not the government, is the most efficient allocator of resources.

Competition is an incentive to adapt and create new products for the consumer, not an excuse to seek government assistance. Without competition, an industry tends to stagnate. Protectionism creates opportunities for monopolization, where prices can be maintained at artificially high levels. As foreign producers improve their products and decrease their costs, protected domestic industries become ever more dependent upon government aid.

Because protectionism raises prices, it reduces living standards. In the words of Adam Smith, “In every country it always is and must be the interest of the great body of the people to buy whatever they want of those who sell it cheapest.”[8]

In 1984, tariffs on Japanese cars cost U.S. consumers an estimated 4.5 billion dollars, while clothing duties cost an estimated 8.5 billion dollars.[9] Even if employment was preserved, each job supposedly saved by protectionism cost consumers an estimated $50,000 to $100,000.[10] The consumer pays higher prices when purchasing protected goods, and loses money that could be spent on other products.

Many protectionists contend that economic self-sufficiency is needed for national defense. This argument, however, does not justify protection of the wool industry or beekeepers. When trade is free, consumers benefit from the products of other nations, and friendship and trust develop. When nations depend on one another for trade, there is little cause for war. As Frederic Bastiat stated, “If goods do not cross frontiers, armies will.”[11]

The United States has fought several wars related to trade issues. The Revolutionary War began because Great Britain attempted to control U.S. trade. The U.S. fought the Barbary War from 1800 to 1815 to protest the demand for tribute. The War of 1812 protested the blockade of Europe by Great Britain. Even the Civil War was related to the Southern dislike of the Tariff Act of 1828 and the fear of European retaliation.

It is difficult to assess the total cost of protectionism. But we do know that protectionism reduces consumer choices and raises the prices of protected foreign goods and competing domestic products. In addition, our tax dollars are wasted on protected industries that require government subsidies to stay in business. Finally, government procurement policies waste more money through the purchase of over-priced domestic products which could be bought at less cost from foreign suppliers.

To stop this wasting of scarce resources and the spiraling pattern of government intervention, consumers must recognize that freedom of choice is a basic human right, and demand that it be protected like all other rights. []

1.   Charles P. Alexander, “The Tricks of the Trade,” Time, 7 Oct. 1985, p. 34

2.   W. M. Curtiss, The Tariff Idea (Irvington-on-Hudson: The Foundation for Economic Education, 1962), p. 35

3.   Curtiss, p. 35

4.   Richard Aim et al., “Free-Trade Fight,” U.S. News & World Report, 23 Sept. 1985, p. 49

5.   Alexander, p. 34

6.   Gene H. Hogberg, “Prepare for Trade War!” The Plain Truth, Jan. 1986, p. 3

7.   Ludwig von Mises, Human Action (New Haven: Yale University Press, 1949), p. 737

8.   Henry Hazlitt, Economics in One Lesson (New York: Arlington House Publishers, 1979), p. 74

9.   Alm et al., p. 49

10.   Ibid.

11.   Curtiss, p. 63

Further Reading