Free Trade or Protectionism?

Classical Liberal philosopher John Stuart Mill astutely observed in the last century that "Trade barriers are chiefly injurious to the countries imposing them." It is true today as it was then, for the following reasons:

LOST JOBS: Protectionist laws raise taxes (tariffs) on imported goods and/or impose limits (quotas) on the amount of goods governments permit to enter into a country. They are laws that not only restrict the choice of consumer goods, but also contribute greatly both to the cost of goods and to the cost of doing business. So under "protectionism" you end up poorer, with less money for buying other things you want and need. Moreover, protectionist laws that reduce consumer spending power actually end up destroying jobs. In the USA, for example, according to the US Department of Labor's own statistics, "protectionism" destroys eight jobs in the general economy for every one saved in a protected industry.
HIGHER PRICES: Japanese consumers pay five times the world price for rice because of import restrictions protecting Japanese farmers. European consumers pay dearly for EC restrictions on food imports and heavy taxes for domestic farm subsidies. American consumers also suffer from the same double burden, paying six times the world price for sugar because of trade restrictions (to give but one example). The US Semiconductor Trade Pact, which pressured Japanese producers to cut back production of computer memory chips, caused an acute worldwide shortage of these widely used parts. Prices quadrupled and companies using these components in the production of electronic consumer goods, in various countries around the world, were badly hurt.
HIGHER TAXES: Protectionist laws not only force you to pay more taxes on imported goods, but also raise your general taxes as well. This is because governments invariably expand their Customs Department bureaucracies to force compliance with their new rounds of trade restrictions (or in the case of NAFTA, trade regulations). These bureaucrats must be paid. There is also the expense of more red tape and paperwork for trading companies and more harassment of individual travelers passing through the borders.
THE DEBT CRISIS: Western Banks are owed hundreds of billions of dollars by Eastern European and Third World countries. Trade restrictions by Western governments, however, have cut off Western markets for these countries, making it virtually impossible for them to earn the hard currencies necessary to repay their loans. This increases the very real possibility of a collapse of the world banking system.

 When the government of Country "A" puts up trade barriers against the goods of Country "B", the government of Country "B" will naturally retaliate by erecting trade barriers against the goods of Country "A". The result? A trade war in which both sides lose. But all too often a depressed economy is not the only negative outcome of a trade war.

Note EU-Digest: Free trade yes but it must be fair trade where everyone is protected against greed by one party or the other. 


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