Trade Protectionism Is Bad Policy

April 12, 2013

Across the world, trade liberalization over the last century has lowered tariffs and eliminated protectionist policies that hamper the free movement of goods and services. Despite the prevalence of bi- and multilateral trade agreements and the World Trade Organization (WTO), domestic industries continue to persuade the government to use its powers to protect them from foreign competition. Many protectionist regulations are already in place and policymakers should be wary of special interests seeking protection when that protection obstructs the free market, say K. William Watson and Sallie James, trade policy analysts at the Cato Institute.

  • The annual cost of all federal regulations to the U.S. economy in 2008 was close to $1.8 trillion. While it is difficult to determine how much of this cost is from regulatory trade barriers, the cost is probably in the billions.
  • The rulemaking process is supposed to provide transparency by requiring science-based risk assessment or a cost-benefit analysis but special interests are often able to overcome even the most negative of assessments.
  • To eliminate regulatory protectionism, administrative agencies should be required to meet WTO requirements.

The current system of laws in place to prevent protectionism does not require agencies to evaluate whether or not there are alternatives to a proposed rule that would be less trade-restrictive. The United States also makes the WTO less effective by negotiating bilateral or regional agreements.

  • Among the many examples of current protectionism is the case of the catfish industry, which, in the face of competition from a pangasius, an Asian relative of the catfish, successfully lobbied to restrict pangasius from being labeled as catfish in order to maintain a marketing advantage.
  • Other examples include the mandatory country of origin labels for beef, which discriminate against foreign meats; the ban on all flavored cigarettes but not regular cigarettes; and the importation restrictions on shrimp and tuna from countries that don't use devices to protect dolphins.
  • Technical barriers affect 30 percent of international trade and more than 60 percent of international trade in agriculture products.

Trade restrictions typically drive up prices for domestic consumers who would otherwise benefit from world prices that are lower than the protected good or service.

Because the United States is a signatory to the WTO agreement, regulatory protectionism is illegal. By enforcing existing WTO rules and being wary of domestic industry support for trade legislation, the United States could fight special interests and promote free trade.

Source: K. William Watson and Sallie James, "Regulatory Protectionism: A Hidden Threat to Free Trade," Cato Institute, April 9, 2013.

 

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