Opinion Editorial | |
| Monday, September 27, 1999 | |
Restricting Imports Would Raise Businesses' Costs |
Pat Buchanan sincerely believes that the American people would be better off if the government prevented them from importing so many goods from other countries. The money not spent on imports, he believes, would be spent on domestically-produced goods. This would create jobs here and enrich Americans, rather than foreigners. To achieve this goal he would impose high tariffs on imports, especially those from Third World countries.
Critics of Buchanan's view have so far focused on the impact on consumers. Higher tariffs would raise prices for foreign goods, limit consumer choice and reduce competition. These points are all true, but a more serious problem with the Buchanan strategy has to do with the impact on businesses. The fact is that a majority of what Americans import is not consumer goods, but machinery and supplies used by industry.
According to the Commerce Department, Americans imported $917 billion of goods last year, much from U.S.-owned companies in foreign countries (see figure).
The point is that to the extent that Buchanan's protectionist policies work, they will have the counterproductive effect of raising costs for U.S. businesses. With increasing numbers of businesses now engaged in international trade, raising their costs will make them less competitive. Thus, the reduction in the trade deficit resulting from lower imports may be largely offset by lower exports.
In the 1950s and 1960s, many Latin American countries practiced exactly what Buchanan is prescribing for us. It was called "import substitution." The idea was to restrict imports in order to build up domestic industries. While this worked for awhile, two big problems developed. The first was that domestic firms needed government subsidies to be competitive because protectionism raised their cost of doing business, making them uncompetitive.
The second problem was that foreign investment fell off. Even with subsidies, foreign firms had little interest in investing in countries where the cost structure was so high that it was impossible to make a profit. This further reduced access to foreign markets by domestic firms, which raised the trade deficit.
In the end, Latin countries found that protectionism only impoverished them. In the 1990s, most threw out import substitution and opened their economies.
Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, September 27, 1999.
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