A Protectionist is Someone Who … thinks that the ultimate purpose of producing goods and services is to use them to acquire as much money as possible. Unlike a free-trader who understands that the purpose of producing goods and services is to acquire for yourself and your family as many as possible real goods and services to raise as much as possible your standard of living – and who understands that exchanging for money what you directly produce is merely a means of lowering your cost of acquiring in exchange as many as possible goods and services produced by others – the protectionist thinks that the ultimate purpose of producing real goods and services is to use them to acquire as much money as possible.
The Econ 101 teacher typically draws on the white board a diagram of two countries trading with each other. Country A is shown exporting (say) steel to country B in exchange for dollars, and then using those dollars to buy lumber from country B. The Econ 101 teacher informs his or her class that, while these exchanges are mediated by dollars, what ultimately is going on in this diagram is that the people of country A produce steel and send some of that steel to the people of country B because the people of country A want lumber from country B. Likewise, the people of country B produce lumber and send some of it to the people of country A because the people of country B want steel from country A. “The money that you see, class,” explains the Econ 101 teacher, “merely facilitates the exchange of steel for lumber. What’s important here is the getting of steel and of lumber. Money is a tool used by the people of country A to transform some of the steel they produce into lumber that they want to consume. Likewise, money is a tool used by the people of country B to transform some of the lumber they produce into steel that they want to consume.”
The protectionist thinks of this hypothetical two-country exchange entirely differently from the way that the Econ 101 teacher thinks of it. For the protectionist, the people of country A produce steel as a means of getting money; that is the ultimate goal. And the people of country B produce lumber as a means of getting money; that – the getting of money – is the ultimate goal. While for the Econ 101 teacher the two-country diagram that he or she draws is meant to show how money facilitates the ultimate acquisition by the peoples of each country of real goods, for the protectionist the diagram seems to show that the production of real goods is a means of facilitating the ultimate acquisition by the peoples of each country of money.
Don Boudreaux, “A Protectionist is Someone Who…”, Café Hayek, 2018-04-10.
July 20, 2020
QotD: Protectionists misunderstand the role of money
June 14, 2020
QotD: The seen gains and unseen losses of high tariffs
It’s easy to rejoice when a wall, literal or figurative, enriches you. And it’s even easier when the destruction wrought elsewhere by that wall is invisible. When a tariff wall causes people in Louisiana and Oregon to pay higher prices for steel made in Pittsburgh, no one can know how they would otherwise have used the extra funds they now pay to Pennsylvania steel producers. But those funds must be diverted from somewhere.
Yet because those somewheres are many, no one domestic industry suffers any great loss from higher steel tariffs. The destruction wrought by tariff walls is dispersed and, hence, invisible. But the sum of the losses is greater than the gain to domestic steel producers.
Americans on the whole are made poorer.
Don Boudreaux, “Mr. Trump, don’t build those walls!”, Pittsburgh Tribune-Review, 2016-11-22.
May 24, 2020
QotD: The “balance of trade”
The first thing to observe about this concept [of the balance of trade] is that it is in fact an analytic tool. The balance of trade is not a concrete thing like a price or a load of merchandise.
Yes (although it is even more accurate to describe the balance of trade as an accounting convention). If, for example, it had been decided to record purchases and sales of real estate on the current account rather than on the capital account, the size of each country’s current-account deficit or surplus would be different even though absolutely nothing real in the national or global economy would be changed. And yet to hear any of the many protectionists bemoan their country’s trade- or current-account deficit is to hear people who typically mistake this accounting convention for a concrete thing. Such complaints almost always reflect utter misunderstanding of so-called “trade balances.”
Don Boudreaux, “Bonus Quotation of the Day…”, Café Hayek, 2018-01-21.
May 14, 2020
QotD: Anti-dumping laws
As a result, antidumping law as it currently exists routinely punishes normal competitive business practices — practices commonly engaged in by American companies at home and abroad. It is therefore not the case that the law guarantees a level playing field for American companies and their foreign competitors. On the contrary, it actively discriminates against foreign goods by subjecting them to requirements not applicable to American products.
Brink Lindsey and Dan Ikenson, Antidumping Exposed: The Devilish Details of Unfair Trade Laws, 2003.
March 10, 2020
QotD: Free trade versus protectionism
People trade freely countless times, each and every day. Yes, yes, I’m well aware that such trade isn’t ideally free. Occupational-licensing restrictions, for example, unjustly and harmfully obstruct domestic trade. But the fact remains that today within each country – including within the U.S. – trade is not typically obstructed based on geographic location or political boundaries. And therefore people buy and sell freely within countries. If the case for a policy of free trade were not practical – if it were only a theoretical curiosity – then it would be true that ordinary people would be even richer if the state obstructed their abilities to trade with each other domestically.
It’s a myth also that the economic case for a policy of free trade in any one country requires that other governments also practice free trade. The case for a policy of free trade is, at bottom, a case for unilateral free trade: while nearly everyone in the world would be better off if all governments adopted policies of free trade, nearly everyone in the home country would be better off if the home government adopts a policy of free trade regardless of the policies of other governments.
Protectionism is a nasty mash of logical fallacies, half-truths, hubris, economic ignorance, and cronyist apologetics.
Don Boudreaux, “Quotation of the Day…”, Café Hayek, 2017-12-18.
March 6, 2020
QotD: Mercantilism
Don Boudreaux, “Quotation of the Day…”, Café Hayek, 2017-12-17.
December 14, 2019
Who will “Big Dairy” push as the next Conservative leader?
The Canadian supply management system is a classic case of concentrated benefits and diffused costs … all Canadians pay more for milk, cheese, and other dairy products, but the extra profits go to those who hold the quota allotment for production. During the last federal Conservative leadership race, the “temporary conservatives” were enough to push the Milk Dud over the top to defeat Maxime Bernier — because Bernier was outspoken in his opposition to the whole supply management cartel and threatened those guaranteed profits for the insiders. The Milk Dud has announced he’s stepping down, so who will Big Dairy choose to replace him?
Andrew Scheer, paid tool of Big Dairy, chugs some milk during a Press Gallery speech in 2017. I’ve called him the “Milk Dud” ever since.
Screencapture from a CTV video uploaded to YouTube.
To my mind the defining image of Andrew Scheer’s efforts to become prime minister of Canada, which officially came to an end Thursday, comes from the 2017 Press Gallery Dinner in Ottawa. “There’s some suggestion out there that I’m beholden to a certain group within the Conservative family,” he told the crowd, grinning. And then, dimples at maximum, he took a swig from a one-litre carton of Neilson two-per-cent milk.
It’s nice when politicians can poke fun at themselves. Most are really bad at it, betraying only their own ego. Scheer’s routine, by contrast, reportedly brought the house down. The problem is that, by all the evidence, Scheer was utterly beholden to the dairy industry. And absent the effects of alcohol, that’s not really very funny.
We knew at the time that, days before, Scheer had barely beaten Maxime Bernier in the party leadership contest with help from a few thousand votes from people whom Bernier not unreasonably called “fake Conservatives” — i.e., people who had purchased memberships for the sole purpose of voting for Scheer, for the sole purpose of maintaining supply management in the dairy industry (which Bernier opposes) intact.
We came to know later, thanks to a Dairy Farmers of Canada briefing book discovered by an aggrieved delegate to the 2018 party convention in Halifax, that the dairy lobby considered Scheer a “safety net.” Regardless of any vote by the party membership that might recommend freer markets in dairy, the book alleged, the farmers had Scheer’s commitment never to undermine supply management in an election platform.
Scheer denied any such deal existed, of course. But it seemed doubtful the dairy industry’s notoriously fearsome, professional and effective lobbyists could have been so misinformed.
It ought to have been a liability from the start: Here was the self-styled middle-class alternative to Justin Trudeau, the man who knows what it’s like to plan a family budget around the breakfast table, to scrimp and save, whose parents didn’t own a car, declaring his fealty to a cartel dedicated to inflating milk prices for the benefit of wealthy businesses. Har, har, har.
November 15, 2019
QotD: Understanding trade policy
Now let Jones secure Jackson’s approval for his actions. Jackson expresses his approval not only of Jones obstructing your freedom to buy across-town tomatoes, Jackson also approves of Jones taking some of your money directly to help Jones pay for the employment, arming, and dressing up in fancy costumes of a street gang who will do the actual dirty work of caging or killing you if you refuse to abide by the tomato-buying terms that Jones imposes on you.
When you object to the injustice of Jones’s actions, he reminds you that you had a vote in this matter. But being outvoted 2 to 1, this majority outcome, by some mystical process, transforms Jones’s pure and simple thuggery into perfectly acceptable – even noble – “trade policy” the violation of which would make you the anti-social criminal.
Further, Jones, to his delight, discovers that Jackson has been hard at work on a treatise that details the many dangers of allowing you to buy your tomatoes without obstruction from across town. Jackson’s treatise even has empirical data on the number of tomatoes and labor hours that would no longer be grown and and worked on your Elm St. block if you are left free to buy your tomatoes unobstructed. Combined with criticisms of “simple-minded” defenses of free trade and with explanations that tomatoes grown across town are sold at unfairly low prices, Jackson’s treatise rids Jones of the few qualms that Jones’s threats of violence against you caused him to suffer from time to time
Thus is “trade policy.”
Don Boudreaux, “Quotation of the Day…”, Café Hayek, 2017-10-23.
October 6, 2019
Finally a reason to climb on the impeachment bandwagon
Andrew Heaton, in his latest newsletter, explains why he’s finally come down on the side of impeaching President Trump:
Okay, here’s the main thing I wanted to talk to you about: America is about to slap a TWENTY-FIVE PERCENT tariff on scotch. The underlying story involves the WTO and Airbus, but I think I can save everybody a lot of time by pointing out that our president is a mouthbreathing protectionist who’s too lazy to read Adam Smith’s wikipedia page.
Here are a few things to consider:
- Tariffs are just taxes, designed to punish you for having the gall to buy something from a foreigner.
- This will hurt Scottish distillers, and potentially price out distillers with low profit margins.
- I might have to switch to wine on dates.
- We have now spent more money needlessly bailing out farmers from a trade war with China than we did bailing out banks under Bush.
- We’ve known about the idiocy of tariffs since The Wealth of Nations came out in 1776.
- Trump, a man lacking an ideological core, for reasons which boggle the mind, seems to genuinely believe tariffs and protectionism are good things, as he has maintained since the 80s.
Chances are if you subscribe to this newsletter you’re not a teetotaler, but on the off chance you are, allow me to make a case against whisky taxes even if you are not personally apoplectic about a tax hike on Laphroaig. (A concoction personally invented by Almighty God. It’s like you’re drinking a campfire. Try it.)
There’s an old saying: when goods don’t cross borders, armies do. I concur with this. In fact my largest contribution to the field of economics (Nobel Prize forthcoming) is Heaton’s Peace Through International Mistresses Theory.My groundbreaking idea is that we want to have an interconnected, global economy with lots of transnational trade, because businessmen will be less supportive of bombing cities their mistresses live in. When trade wars happen, international trade collapses, and suddenly businessmen are flying to Berlin and Paris a lot less. Pretty soon we’re firebombing Tokyo.
It would probably be more appropriate of me to dedicate my political analysis to the forthcoming Ukraine/Trump/Biden/Impeachment circus which will dominate our lives for the next few months. However in my case I don’t need to. The president has messed with my scotch. Now it’s personal. I’m all in.
Impeach the guy.
#FreeTrade
You can subscribe to Andrew’s email newsletter here.
September 29, 2019
QotD: Crony capitalists and corrupt politicians love tariffs
Many who agree with me here will nevertheless scold me for using, à la Bastiat, the provocative word “plunderers.” But I stick to my choice of words.
“Plunderers” is descriptive, for plunder is in fact what trade restrictions are all about. For two and a half centuries now we proponents of free trade have played mostly on the rhetorical turf of protectionists. On this turf there are language biases galore, such as “trade deficit,” a lowering of home-country tariffs described as “concessions” to foreign countries, the arrival in the home country of especially low-priced imports condemned as “dumping,” and, indeed, the word “protection” itself. Also, don’t forget the constant, clanking parade of inapposite military and sports metaphors.
For two and a half centuries now we proponents of free trade have typically treated the efforts of rent-seekers and rent-dispensers to portray their use of the state to enrich themselves at the expense of others with intellectual and moral respect. Why?
No one attempts to intellectually rationalize the theft and violence committed by street gangs. No one attempts to rationalize shoplifting, vandalism, armed robbery, arson, or rape. (It would, do note, be child’s play for a competent economics graduate student to develop a coherent theory of “optimal gang violence” that shows that, under just the right set of circumstances, there is an “optimal” amount of gang violence that improves the national welfare.) We call these destructive exercises of theft, coercion, and violence “theft,” “coercion,” and “violence.” We call these predatory activities what they really are.
By calling protectionism what it really is – the plunder of the many by the politically powerful few – we more vividly and widely expose protectionism’s ugly and cruel reality.
Don Boudreaux, “Quotation of the Day…”, Café Hayek, 2019-08-04.
August 18, 2019
QotD: “Hitting back” at protectionist policies
But soon a trade dispute erupts. Stump discovers – correctly, we can assume – that XYZ is charging you less for its lawn-care services than Stump agreed is acceptable for you to be charged and that XYZ agreed in the trade deal to charge. Stump, being a master negotiator, threatens to reimpose the $25 tariff on you unless and until XYZ raises the price it charges you to at least the level that Stump has divined is acceptable and that is enshrined in the terms of the trade agreement between him and XYZ. Alas, XYZ gives in and agrees to raise the price it charges you. Stump then boasts that, by not letting XYZ get away with breaking its word in the trade deal, he is not only protecting the neighborhood from dangerously low prices but is also upholding the sacred rule of law and the sanctity of contractual agreements.
Of course, in reality, Stump’s presumptuous exercise of the power to
rob youimpose a tariff on you whenever you engage in commerce that he finds objectionable is a wrong inflicted on you and on your trading partner, XYZ. The fact that the practicalities of the situation result in your and XYZ going along with the “deal” to entice Stump to stop robbing you each time you buy XYZ’s services does not ethically oblige you to stick to the terms of the deal if you can, in secret, get better terms from XYZ. When Stump threatens to reimpose on you the $25 tariff, he harms you. That is, when in response to Stump’s threat to reimpose the tariff XYZ agrees to abide by the terms of its trade agreement with Stump and raise the price that it charges you, you are made worse off, not better off.Stump’s enforcement of this agreement, in short, does not protect you from further victimization in the future; instead, that enforcement is itself an act of victimizing you. Successful enforcement of this agreement assures you a future less prosperous than it would be were Stump instead to ignore XYZ’s “violation” of the deal.
Note: we can all agree that, between the two options (1) $25 tariff and (2) no tariff but an enforced price-hike, under the trade agreement, of $15, that the second option is better for you than the first option. It is in this limited sense that trade agreements in reality are beneficial. But there’s a third option: (3) Stump does not interfere with your commerce and you pay whatever price you negotiate with XYZ without that price being artificially affected by Stump’s interference. This third option is, for you, the best of the three – and it’s the only fully ethical one of the bunch. (So when Dan Griswold, myself, and other free-traders defend trade agreements, we do so with the realistic recognition that option (3) is politically infeasible. Given this unfortunate infeasibility of option (3), we endorse option (2) over option (1).)
Don Boudreaux, “Strict Enforcement of an Impoverishing Deal Assures Continuing Impoverishment”, Café Hayek, 2017-07-07.
July 9, 2019
QotD: Tariffs
Over and above the general point that we don’t want to limit trade nor imports there’s another worry with tariffs and trade wars. Which is what the International Monetary Fund is complaining about. The imposition of more tariffs is a disruption to that global economy. One that is going to reduce growth, the very thing we all desire.
Tim Worstall, “IMF Says The U.S. And China Trade Tariffs Are A Major Risk To World Growth”, Seeking Alpha, 2019-06-07.
June 14, 2019
Eliminating the trade deficit
A few weeks back, Robert Higgs explained why President Trump’s concerns about the trade deficit are, at best, misplaced and how “fixing” it would lead to a much worse situation:
Donald Trump addresses a rally in Nashville, TN in March 2017.
Photo released by the Office of the President of the United States via Wikimedia Commons.
So, let’s consider the president’s trade policy in, as it were, its very best light. Suppose, then, that the government succeeded in eliminating the trade deficit entirely. Residents of the USA would continue to sell huge quantities of goods to foreigners but buy nothing at all from foreign sellers. The trade deficit would be not only diminished but wiped out and replaced by a huge trade surplus. Trumpian triumph!
Note, however, that such an outcome would be impossible to sustain for long even if it could be attained (which in fact it could not). Foreigners would be spending huge quantities of dollars to purchase goods from Americans, but they would have no means of earning dollars because Americans would not be buying anything from them. Foreigners could continue to make such purchases only if they received dollar credits from foreigners. But lenders would have no incentive to lend dollars to the Chinese, say, when they knew that the Chinese would have no ability to repay the loans because they would have no means of earning dollars in the future by sales to Americans. So a big U.S. trade surplus requires that totally implausible assumptions be made about international transactions in general and international lending in particular.
But apart from such practical difficulties and impossibilities, a Trumpian trade triumph, even if it could be achieved, would be a horrible objective to attain. Americans would be employing labor services, natural resources, and other productive inputs to produce goods and shipping them to foreign buyers. In exchange, they would receive nothing but bank account balances. Such a deal! Surrendering huge volumes of valuable goods and receiving in return larger numerals in people’s bank account statements, more dollars that could not be used to purchase anything, no matter how important or desirable, from abroad — all such purchases having somehow been stopped by a harebrained government and the economic ignoramus in charge of it.
June 12, 2019
The fantastic notion that Donald Trump is “at heart really a free trader”
Guest-posting at Catallaxy Files, Don Boudreaux explodes the farcical notion that President Trump is using protectionist tools with an eventual free trade goal:
Donald Trump addresses a rally in Nashville, TN in March 2017.
Photo released by the Office of the President of the United States via Wikimedia Commons.
In the case of Donald Trump, the claim that he is at heart really a free trader who raises tariffs today with the aim of bringing about lower tariffs tomorrow — and all because he is committed to achieving free traders’ ideal goal of maximum possible expansion of the international division of labor — is especially preposterous.
Trump has pontificated on trade for decades, and every word out of his mouth clearly reveals a man who knows nothing about the economics of trade and who is as clichéd an economic nationalist as can be imagined.
Behold this line from a 1990 interview he did in Playboy: “The Japanese double-screw the US, a real trick: First they take all our money with their consumer goods, then they put it back in buying all of Manhattan. So either way, we lose.”
Let’s examine this unalloyed gem of economic witlessness.
Overlooking Trump’s outrageous exaggerations, such as his claim that the Japanese buy up “all” of Manhattan, we start by stating an obvious truth: the voluntary purchase of a good is not a transaction in which the buyer is “screwed” or has his or her money “taken.” Instead, the buyer’s money is voluntarily spent. While every person of good sense sees a foreign seller who makes attractive offers to domestic buyers as someone who improves the well-being of each buyer who accepts the offer, Trump sees this seller as a con artist or thief.
And so Trump ignores the value to Americans of the imports we purchase. In typical mercantilist fashion, he believes that the ultimate purpose of trade is to send out as many exports as possible in exchange for as much money as possible — money that in Trump’s ideal world is never spent on imports. His view on this matter is even more bizarre than that of ordinary mercantilists. For Trump, imports are not merely costs that we endure in order to export, they are actual losses. (Although it goes without saying, I’ll say it nevertheless: Trump does not understand that imports are benefits and that exports are costs.)
Furthermore, by describing the money spent on imports as “our money,” Trump reveals his belief that money earned by each American does not belong to that individual but, instead, to the collective.
Also in the fashion of the typical mercantilist, the presumption is that the nation is akin to a gigantic household whose members all share in and collectively own its money. And just as Dad justly superintends little Emma’s and Bobby’s spending to ensure that they don’t dissipate the family’s wealth, Uncle Sam must superintend his subjects’ spending in order to ensure that we don’t dissipate the nation’s wealth.
One other flaw in the above quotation from Trump’s Playboy interview is notable: he believes that foreign investments in America inflict losses on us. He doesn’t pause to consider that when we Americans sell assets to foreigners we regain ownership of some of the dollars that Trump, in his previous sentence, lamented are lost to Americans when we bought imports.
Nor does he ask what the American sellers of these assets do with the sales proceeds. Perhaps we invest some or even all of them. And if so, perhaps these new American investments will prove to be more profitable than are the investments made in America by foreigners. (By the way, contrary to another mercantilist myth, Americans are not made better off when foreigners’ investments in America fail. Quite the contrary.)
An even deeper error infects Trump’s “understanding” of foreign investment: he implicitly — and, once again, like all mercantilists — assumes that the amount of capital in the world is fixed. Only then would it be true that each American sale of assets to foreigners necessarily reduces Americans’ net financial worth (which is presumably what Trump means when he says that “we lose” when the Japanese purchase Manhattan real estate).
May 17, 2019
The EU’s trade distortions harm African farmers in many ways
One of the unifying themes of the European Union is its dedication to farm subsidies, which are very popular among some European farmers. EU farming subsidies and trade policies also do significant measurable harm to African farmers:
spiked: How does the EU harm African economies?
Sam Akaki: Thanks to the EU’s Common Agricultural Policy, which heavily subsidises EU farmers, Africa’s markets are flooded with their cheap excess produce. If you go to any African market, you can buy all kinds of European produce sold at very, very cheap prices. This is driving African farmers out of the market. At the same time, the EU imposes strict limitations on what African countries can export to the European market. In particular, African farmers cannot export value-added goods. So if a farmer in Ghana is producing cocoa, or a farmer in Kenya is producing coffee, they can perhaps get less than a dollar for their product as they have to export it raw. Only a fraction of the money you pay for a jar of coffee goes to an African farmer. The value-added goods, such as processed coffee, are then produced in Europe. Germany, especially, has been doing a lot of harm.
EU lobby groups and NGOs are not working in the interests of Africa and are opposed to African attempts to get themselves out of poverty. For instance, many African farmers work with genetically modified (GM) crops. One of the big issues about GM food is that Western companies sell GM seeds that don’t produce new seeds for the next season. Farmers have to go back to companies like Monsanto every year. In Uganda, at the Kawanda Agricultural Research Institute, scientists have been working on their own way of producing local GM seeds that will be reusable each year. Europe is against this and tries to stop it.
[…]
spiked: How have EU sanctions affected Africa?
Akaki: The clearest examples are Zimbabwe and Eritrea. Of course, these countries have human-rights issues. But human rights are a question of development. Countries go through developmental stages. There would have been enormous human-rights abuses in Europe 100 years ago. The UK and the EU use their influence selectively to impose economic and diplomatic sanctions on African countries. We should follow a consistent policy. We impose sanctions on African countries but we are happy to trade with other human-rights abusers like Saudi Arabia. One danger is that these sanctions are driving African countries closer and closer into the arms of the Chinese. This is a real own goal.
Sanctions are a blunt instrument. The leaders responsible for human-rights abuses are protected. They still have access to the best lifestyles money can buy. Their money is stashed away in British and other foreign banks. Sanctions don’t touch them at all. Instead, they hit the poorest hardest. Sanctions are directly contributing to poverty and mass migration. We should promote human rights, certainly, but we shouldn’t use human rights to punish the very poorest.
