The Failure of ProtectionismCommentary by Pete du Pont
April 04, 1996
The Great Wall of China dates from the Ming dynasty (1368-1644), but successive invasions from the North proved that it had no more military utility than the "impregnable" Maginot Line did for the French in 1940. Gunpowder and artillery long ago had rendered castle walls useless too.
The failure of walls to provide military security has not discouraged a tough-talking Pat Buchanan from centering his presidential campaign around trade walls to enhance our economic security. Unfortunately, economic walls make no more sense in the modern world than do castle walls for military protection.
Logic rejects protectionism, for a wider choice of goods at varying prices benefits consumers. Experience has backed up the logic. The 1930s, of course, are exhibit A. To save jobs, two Republicans, Representative Willis C. Hawley of Oregon and Senator Reed Smoot of Utah, crafted a bill to raise a massive tax wall around the U.S. economy. Signed into law in 1930 by another Republican, President Herbert C. Hoover, foreign trade plummeted, handsomely aided by the retaliatory tax burdens erected by other governments. The ensuing mass unemployment and desperation throughout the industrial world led to dictators and semi-dictators, who, in turn, took the steps from trade war to actual war.
Learning this lesson, 1945's victorious allies were determined to work to reduce tariffs and eliminate other barriers to international cooperation. The much-denounced GATT, or General Agreement on Trade and Tariffs, was the primary means chosen to promote open international trade. To be sure, multilateral agreements have blemishes and raise sovereignty issues, but there is no gainsaying that GATT has worked. World trade has been kept relatively open and now tops $4 trillion per year in merchandise alone, not to mention an enormous daily volume in services, investments and financial transactions across national borders.
Not that economic logic and facts are likely to deter a bellicose Pat Buchanan. It is easy to arouse tribal resentment, but a wall around U.S. business is the last way in the world to appease Americans' longing for a better life. Protecting companies from competition will not make us rich. On the contrary, open trading, both foreign and domestic, is the key to wealth. We should make trade easier, not harder.
Protection may work in a distorted way in the short run, holding a few visible jobs in companies that would otherwise "rightsize" or disappear. But it cannot work in the long run to boost jobs and wages. Protectionism rewards the inefficient and penalizes the efficient. As economist Ludwig von Mises put it, "The history of mankind is a long record of obstacles placed in the way of the more efficient for the benefit of the less efficient." A few politically visible jobs are protected by interference at the cost of many better-paying jobs destroyed elsewhere.
Over the longer run, government protection fails to create jobs and prosperity in the most protected industries. Take the maritime industry, for example. Once a great seafaring nation, the United States became much less competitive during the 20th century. Heavily subsidized and unionized, our domestic maritime trade is completely reserved to American-built, American-owned and American-crewed vessels. The consequence has been high-priced monopoly service between U.S. ports, costing consumers higher prices for goods and, yes, costing U.S. sailors their jobs.
How has the maritime industry fared under its 75-year protected monopoly created by the Jones Act of 1920? In 1950, the U.S. flag fleet consisted of a thousand ships; a half-century of subsidy later, there are less than 200. In 1950, U.S. flag vessels carried 43% of America's foreign trade; today they carry less than 4%. In 1950, 57,000 Americans had jobs in our merchant fleet; today less than 9,000 go to sea in U.S. flag ships.
A 1991 International Trade Commission study put the inefficiency costs of the Jones Act at $3.6 billion to $9.8 billion annually.
Protectionism simply cannot work. Technologies and industries rise and fall, expand and contract, come and go. The reasons are diverse but foreign competition is one of the minor factors in our huge, global-size economy. Economic change is an asset, not a liability, as new technologies and cost reductions bring wider consumer choice. We have nothing to fear from better or cheaper foreign products.
Centuries ago, the English King Canute stood at the water's edge and forbade the tide to come in. He was no more successful than America can be in trying to keep out foreign goods and services in the age of the Internet and global economics. The daily ebb and flow of the tides is central to global ecology, just as trade is to a global economy.