Three Simple Ways To Crush Protectionism

March 28, 2016

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In the age of Donald Trump & Bernie Sanders, a very sad moment is finally upon us. The lack of knowledge regarding economics of America’s population can be observed by basic pork barrel spending proposals as well as something capable of truly ruining the economy: trade. Donald Trump & Bernie Sanders have both time and time again proved to be anti-capitalist, from heavy deficit spending proposals to new regulatory policies, and yes, eliminating trade, the most vital aspect of the economy.

The success of trade and free trade between nations for about the last six decades have borne out the fact that this economic law is inviolable. Go to a Mises retreat with Murray Rothbard, travel the world with Milton Friedman or go hiding from debate challenges with Paul Krugman and find three extremely popular and well known economists, with three very different ideologies, all saying free trade is better. Read history books and you will find clear evidence that today’s sugar tariffs and the 1930 Smoot-Hawley tariff are failures. Go to Denmark, Hong Kong, Sweden and other nations praised by the right and left to see the beauty of free trade. This nationalist tendency towards protectionism and failed take on economic views holds with people just wanting tariffs for no reason outside of it being a feel good policy.

It’s important to look at the reasons protectionists give, and how they are always wrong.

The arguments normally hold as:

“Oh, America does not make things anymore!”

This is easy to debunk just by pointing out how the United States actually has increased manufacturing by about 30% in under three decades. It is true manufacturing jobs are down, but manufacturing jobs globally are on a massive decline.

“China is ripping America off by devaluing its currency!”

An argument which just begs the question of, Why is that bad for America? China devaluing their currency, besides making our bond market more competitive to investors, is just a massive subsidy to American consumers being able to tap into artificially cheap labor. It’s a massive advantage to us over them and it’s basically them giving us free money.

“Cheap labor in poor nations is an unfair advantage!”

Well, what isn’t an unfair advantage? I’d call the high literacy levels of the American workforce a pretty solid advantage. I’d call having roads in the United States where people can travel on easily a nice advantage. North America is the world’s largest consumer marketplace, and I’d call its relatively short domestic shipping times an advantage over Asia’s. Basic public safety and better living standards thanks to the business community are advantages Vietnam, China & Mexico don’t really have. I’m not sure how people in China being willing to work for enough food to get a few bowls of noodles is an unfair advantage, but having over a hundred billion in yearly subsidies to higher education alone isn’t. This is simply a bad argument!

“90 million working age Americans are out of work!”

Okay, this is just a flat out lie. The ninety million number that clown car salesman such as Wayne Allyn Root likes to reference is just not true. Of the ninety million mentioned, sixty are over the age of 65 and fifteen are ages 16-24, while the vast majority are still full time students. In this study, a person could literally be a 91 year old blind man with a million dollar retirement fund and marked as not working. It’s a joke. Holding even more importance is the fact the last time a massive American tariff was put into place, unemployment doubled in five months.

Moving on though, the arguments against trade are terrible, but that doesn’t stop them from being put into place. This 1950s apple pie & lemonade on the porch style of thinking has this push on factory jobs being needed and China being evil in the hearts of voters within the right and the left. For that, let’s just provide the three simplest and best arguments to knock out any protectionist in a debate.

Why Stop At Countries?

This is an argument used to ask, Why not a $30 minimum wage or a $100 minimum wage? It takes something which a person is aware would cause economic harm and takes it into another extreme where a person can see a clear error in their thinking process.

For protectionist trade policies, if it’s so good to have tariffs against China or Mexico, why not just ban trade between states or cities? Why should my home state of New York with a very high standard on environmental regulations and very high cost of living have to compete with the polluting state of Oklahoma where the cost of living is a third less? And why stop there? I’m a Manhattan resident. Why should people in my city have to compete with the prairie lands of Buffalo or Rochester with cheap labor and tons of land when homeless people are on the streets here? Let’s tariff all trade!

Obviously, hearing that argument, it does sound as if it’s madness. One quick counter might be pointing out the Commerce Clause, but that doesn’t really hold up well in actual economic reasoning. Examining this, it’s simple: whenever markets have fewer players to trade with, the standard of living falls. This is the easiest counter against free trade.

Which protectionist countries have actually been successful?

The United States has always been relatively pro free trade as a nation. Its only instance of pure protectionism was Smoot-Hawley and the result of that was disastrous. Yet, looking at Mexico, China, Hong Kong, Denmark, Sweden and many others, trade clearly works. Before trade, China was a third world nation. Hong Kong, which has almost no natural resources, managed to become a powerhouse of economic growth rivaling the United States’ per capita rate, just by holding near universal open trade. Sweden which was in an economic downturn in the last two decades recently moved towards a more liberal policy on trade and is enjoying economic growth.

Which nations have protectionist policies? Cuba, Venezuela, North Korea, Western Africa. How are they better off? I rest my case.

Why Not Ban Robots?

This argument might not be the best one. The reason being some people reading this, such as Bernie Sanders supporters, will say, “Hey, we should ban robots!”

In the last five decades, global manufacturing jobs have been cut in half due to automation. In the next two decades, it is likely that technological advancements will again cut manufacturing jobs in half. At least global dependence on nations for trade prevents wars. Robots just create science fiction novels of them causing wars. Also, they aren’t people who have emotions. This begs the question, Why is it acceptable for manufacturers to use robots, but not employ Mexican, Vietnamese or Chinese labor?

The answer is simple: people see it first hand and don’t see harm. Before ice makers became a popular item in every home, there was the iceman who delivered large bags of ice. Before washing machines, many restaurants would hire more staff in kitchens to wash dishes by hand. Even things such as cars being better built and designed to last longer could be considered a job killer. Yet despite the job losses due to automation, there isn’t a sense of competition. When a smartphone has a $0.99 accounting app which kills 50,000 jobs, people see them having more money to buy other goods and services while being able to hire more people and a greater standard of living. When people buy textiles made in China, they don’t value the $20 savings they just made, instead becoming incensed a worker with whom they share a native tongue is not benefiting from the sale of that item.

History and economics know the truth on trade. It is the basis of the market and growth occurs when more players compete to produce and distribute goods and services. Trump’s followers represent this crazed nationalism and anti-foreigner rogue competition. The people who support Sanders have good intentions in their hearts, but bad economics in their heads. It’s important to remind ourselves of the contributions of Milton Friedman, Paul Krugman and Murray Rothbard, standard-bearers in the study of economics. They are and were three very different thinkers who nonetheless arrived at the same conclusion: free trade is essential for a thriving economy.