Restricting Imports Would Raise Businesses' Costs
September 27, 1999
Pat Buchanan sincerely believes the American people would be better off if the government prevented them from importing so many goods. 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. But a more serious problem with the Buchanan strategy is the fact that a majority of imports 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.
- Of this, $270 billion was for capital goods -- machinery and equipment used by businesses to produce other goods.
- Another $200 billion is classified as industrial supplies, such as oil that is refined into gasoline and many other products.
- Only $217 billion of imports are classified as consumer goods.
- The rest -- autos, food and feed and miscellaneous -- are partly consumer goods and partly industrial.
In the 1950s and 1960s, many Latin American countries practiced exactly what Buchanan is prescribing. It was called "import substitution." The idea was to restrict imports in order to build up domestic industries. While this worked for awhile, domestic firms needed government subsidies to be competitive because protectionism raised their cost of doing business.
Also, foreign investment fell off. Foreign firms had little interest in investing in countries where it was impossible to make a profit. 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 23, 1999.
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