Protectionism on the rise

Soldie

It's no secret that China has kept the value of their currency low in order to boost exports, and it is the source of much ire for America (and indeed the EU, too). America's response has been to impose import tariffs on certain Chinese goods in order to protect American companies from being undercut. An example of this is a 35% duty imposed on Chinese-made tyres, and the BBC is reporting today that the WTO has upheld its ruling that America is entitled to do so. Bloomberg provide some further details, and point out that the push for the protectionist measures came from the "United Steelworkers union, which represents 15,000 employees at 13 tire plants in the U.S". It strikes me as extremely short-sighted that Obama has buckled to the pressure and imposed this tariff; anyone with even a very basic understanding of economics can see that such measures serve to benefit the producers at the expense of everyone else, as, without the tariff, customers would have access to significantly cheaper tyres.

The arguments against economic protectionism are not new, either; they are, in fact, centuries old. Frédéric Bastiat's satire of protectionism is as poignant today as it was when it was written in 1845. For those unfamiliar with it: Bastiat presents a petition to the French government on behalf of candlemakers, and those "generally of everything connected with lighting". He lobbies the government to protect their industry from an unfair foreign competitor -- the sun! It makes for quite amusing reading, but it's also rather depressing that governments around the world are repeating mistakes that are centuries old.

A couple of excerpts:

We are suffering from the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival, which is none other than the sun, is waging war on us so mercilessly we suspect he is being stirred up against us by perfidious Albion (excellent diplomacy nowadays!), particularly because he has for that haughty island a respect that he does not show for us.

We ask you to be so good as to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull's-eyes, deadlights, and blinds — in short, all openings, holes, chinks, and fissures through which the light of the sun is wont to enter houses, to the detriment of the fair industries with which, we are proud to say, we have endowed the country, a country that cannot, without betraying ingratitude, abandon us today to so unequal a combat.

First, if you shut off as much as possible all access to natural light, and thereby create a need for artificial light, what industry in France will not ultimately be encouraged?

If France consumes more tallow, there will have to be more cattle and sheep, and, consequently, we shall see an increase in cleared fields, meat, wool, leather, and especially manure, the basis of all agricultural wealth.

If France consumes more oil, we shall see an expansion in the cultivation of the poppy, the olive, and rapeseed. These rich yet soil-exhausting plants will come at just the right time to enable us to put to profitable use the increased fertility that the breeding of cattle will impart to the land.

Our moors will be covered with resinous trees. Numerous swarms of bees will gather from our mountains the perfumed treasures that today waste their fragrance, like the flowers from which they emanate. Thus, there is not one branch of agriculture that would not undergo a great expansion.

The same holds true of shipping. Thousands of vessels will engage in whaling, and in a short time we shall have a fleet capable of upholding the honour of France and of gratifying the patriotic aspirations of the undersigned petitioners, chandlers, etc.

But what shall we say of the specialities of Parisian manufacture? Henceforth you will behold gilding, bronze, and crystal in candlesticks, in lamps, in chandeliers, in candelabra sparkling in spacious emporia compared with which those of today are but stalls.

There is no needy resin-collector on the heights of his sand dunes, no poor miner in the depths of his black pit, who will not receive higher wages and enjoy increased prosperity.

It needs but a little reflection, gentlemen, to be convinced that there is perhaps not one Frenchman, from the wealthy stockholder of the Anzin Company to the humblest vendor of matches, whose condition would not be improved by the success of our petition.

Leaving aside how surreal it is that China is giving out to America, of all countries, about protectionism, what are peoples' thoughts on protectionism itself? Why is it still prevalent, and why do politicians think it's a good idea? Perhaps they realise that it's not a good idea, but that, as the Chinese have said of the tyre duties, it is "to transfer domestic political pressure". Your thoughts?

Elevator

in my humble opinion they do everything they do quite simply because they can

the end

Rebelheart

You don't have to go to China to find protectionism on the rise. Drop down to your local Tesco and you'll see products which never had a Union Jack on them are now emblazoned with the yoke, as more and more space is reserved for them and non-British products are excluded.

Eliot Rosewater

I find public support for movements towards protectionism to be a bit bemusing, especially when packaged in nationalistic sentiment, as the people getting most hard done by are the consumers (ie: average joe soaps). I suppose you could argue that the average person isn't aware of negative fallout from protectionist policies. Or that even if they were, protectionism is often argued in an us vs them context (it's the Irish farmer vs the Brazilian farmer, or the poor worker vs the capitalist system) so that people feel obliged to support "their" side, even if it is to their own detriment.

That Bastiat satire is great!

Rebelheart wrote: »

You don't have to go to China to find protectionism on the rise. Drop down to your local Tesco and you'll see products which never had a Union Jack on them are now emblazoned with the yoke, as more and more space is reserved for them and non-British products are excluded.

How is that protectionism?

feicim

Eliot Rosewater wrote: »

I find pubic support for movements towards protectionism to be a bit bemusing,

Really? Surely there is a typo here. Did you mean to say amusing?

Raging_Ninja

The reason the US is a relatively closed economy is because Americans tend to buy American-made goods.

Of course protectionist measures don't really work anyways.

Sure it might protect current jobs, but not for particularly long and in the long run it slows down the economy. International trade increases GDP and creates new jobs - in a completely closed economy there is never any job growth.

Protectionism seems to be a favourite of trade unions and the like who don't want to change jobs.

robbyvibes

So, the US economy is having problems because of China manipulating their currency?
It has nothing to do with US military expenditure?

I can see already this will turn out to be a thread based on good analysis.

Lockstep

My thoughts on protectionism?
Bad. Beggar thy neighbour policies never work.

Amhran Nua

An interesting article here, which while somewhat short on that 19th century satire, is nonethless thought provoking on certain matters...

For all its laissez-faire rhetoric, the Reagan administration fought fire with fire, responding to Japan's market-distorting industrial and trade policies with a firm hand.

It quickly concluded a "voluntary export restraint" agreement under which Tokyo, threatened with protectionist congressional legislation, limited its auto exports to 1.68 million per year. In effect, this forced Japanese automakers to build transplant factories in the United States, somewhat stanching the loss of U.S.-based auto-production and manufacturing jobs. Washington also rescued the failing Harley-Davidson company by raising tariffs temporarily on certain high-end motorcycle imports and was even more aggressive in its support of the domestic semiconductor industry, initiating anti-dumping procedures and getting Tokyo to guarantee U.S. manufacturers 20 percent of the Japanese market.

Most important was the 1985 Plaza Accord under which Washington convinced Tokyo to revalue the yen to reduce the large U.S. trade deficit. Over the next few years, the yen rose against the dollar, and the tide of U.S. imports from Japan receded.

The trade deficit fell from $55 billion in 1986 to $43 billion in 1991. Harley-Davidson and Silicon Valley came rushing back, and Detroit's automakers gained a new, if temporary, lease on life.

Somehow these successes from America's last great trade war have been forgotten -- blotted out by patriotic sloganeering ("American industry pulled up its socks to meet the Japanese challenge") and economic shibboleths ("Trade is always and everywhere a win-win proposition"). But wishful thinking won't help with China -- much less at such a volatile time in the global economy.

Raging_Ninja

robbyvibes wrote: »

So, the US economy is having problems because of China manipulating their currency?
It has nothing to do with US military expenditure?

I can see already this will turn out to be a thread based on good analysis.

Military expenditure by the US is only a fraction of the US Federal Budget, and much of that is reinvested back into the economy as soldiers are paid and the equipment is bought.

Their biggest problem will be the Social Security and Medicare/Medicaid payouts which will skyrocket in a few years once the Baby Boomers start retiring. We'll be staring down the barrel of that gun ourselves in about 20 years,