Economy · June 23, 2022

With friends like these, who needs enemies?

Few presidents have wrapped their protectionism in the American flag to the extent that Donald Trump has. But all recent presidents have continued a long line of protectionist policies, and Joe Biden is clearly on that list.

Such policies are based at least in part on the idea that “good” American producers should receive special treatment over “bad” foreign producers for the good of our country. But that leaves one important group out of the political equation: American consumers. And our common interests as consumers are what unites us most. Consequently, as Leonard Read said, “consumer interest is the premise from which all economic reasoning should start”, and since “my interest is progressively served by an increase in goods and services obtainable in voluntary exchange for my offers … As a consumer, I choose freedom “.

Unfortunately, the history of patriotic protectionism confuses the friends and foes of American consumers. Our supposed enemies, the foreign producers, are actually our friends, and our supposed friends, the domestic producers and the US government, are actually our enemies.

How are domestic producers so often enemies of domestic consumers? It is in their interest to restrict competition for consumer patronage, to raise their prices and profits, to the detriment of consumers. As Adam Smith famously noted in his Wealth of nations, “Rarely do people in the same profession meet … but the conversation ends in a conspiracy against the public, or some ploy to raise prices.” This is why Smith supported market competition, while he criticized the behavior of businessmen who were in favor of limiting it. Competition open to voluntary offers by all undermines the ability of businesses to abuse their consumers.

Conversely, consumers’ only clear friends are those who offer them the best price and product combinations. By improving the offers of others, they anticipate the interests of the buyers. Yet domestic producers often treat those benefactor consumers as bitter enemies.

Importantly, however, history has shown that effective collusion against rivals is quite difficult to create and sustain, due to difficulties in establishing and maintaining agreement on a range of policies and actions, controlling member incentives to “cheat” on such agreements and exclude the participants who would have surpassed them. Businessmen, left alone to their devices, often fail in such attempts.

This is why our government is also the enemy of domestic consumers when it creates or supports protectionist policies. The government can solve the problems facing such colluding against consumers’ interests much more effectively because it can use coercion. Can help national anti-competitive efforts through regulations (e.g. agricultural marketing orders and crop price support) and government barriers to entry and competition (e.g. licensing restrictions), as well as import tariffs, quotas and others restrictions (eg protectionist policies that claim to protect health and safety), to limit foreign competition.

Another way to put it would be, “With friends like that, who needs enemies?” which Yale’s book of quotes attributes to comedian Joe Adams.

Fortunately, the villains in the history of patriotic protectionism, the foreign producers, are actually friends of American consumers. The reason is that their only means of getting Americans to buy from them is to offer a better deal than they find available nationwide. That is, their only way to promote their interests is to do so Act as friends of American consumers, unlike the American producers who target them, favored by their government.

The story of the American producer versus the foreign producer, in which patriotism supposedly directs us to favor “our” producers over “their” producers, omits the central question. The essence of protectionism is that our producers conspire with our government to harm our consumers. And when we take into account the negative effects on domestic consumers, it destroys the patriotic protectionist story, because patriotism does not imply that our government should help our producers begging our consumers in a negative-sum wealth transfer game.

The erroneous slant of patriotic protectionism is also aided by a skewed view of trade deficits and surpluses, which sees the financial credit outflows that accompany nations’ trade deficits as proof that their citizens are harmed. That view is false.

For each individual involved, each trade produces a surplus of value over cost. As long as it is voluntary and does not involve force or fraud, all participants value what they get more than what they give up.If a country has a trade deficit, that doesn’t change at all, just like my trade surplus with my employer. work and my trade deficit with supermarket chains don’t make me feel worse. So if everyone involved benefits in their own eyes, how are Americans being unjustly harmed? As Henry George wrote Protection or free trade? (1886): “Trade is … mutual consent and gratification … Free trade is simply letting people buy and sell how they want … protection … is preventing people from doing that who want … to do to ourselves in peacetime what enemies try to do to us in wartime. “

Unfortunately, the protectionist “solution” to a trade deficit by limiting imports reduces mutually beneficial deals. It removes the gains (“surplus” of cost benefits) that Americans get from imports that offer better deals. That is, “fixing” a trade deficit in this way reduces the surplus of value that domestic consumers receive from their international trade.

Despite the common association between patriotism and protectionism, we would do better to remember, with Samuel Johnson, that such “patriotism can be” the last refuge of a scoundrel. “True patriotism supports free trade, because foreign producers are allies of national consumers in offering lower prices and higher quality products. As Thomas Paine, the speaker of our Revolution wrote, free trade is deductible from the principles “on which government should be built”, while protectionism represents “the greedy hand of the government, which sticks in every nook and cranny, “for some Americans against others.

No amount of rhetorical play denies the fact that trade restrictions are attacks on the welfare of Americans by domestic producers, enabled by our government, while free trade simply allows us to maintain our freedom to choose who to associate productively with and how to organize such associations, without artificial limitations. Such protectionism undermines our freedom and well-being. It is a denial of American patriotism, not an application of it.

Gary M Wales

Gary M Wales

Dr Gary Galles is Professor of Economics at Pepperdine.

His research focuses on public finance, public choice, business theory, the organization of industry and the role of freedom, including the views of many classical liberals and founders of America.

His books include Pathways to policy failure, Defective premises, Bad policies, Apostles of PeaceAnd Lines of Freedom.

Receive notifications on new articles by Gary M. Wales and AIER.