Protectionism: A Threat to Individual Freedom; S. Lai

This basic right, along with such civil rights as freedom of speech and religion, must be de fended or else the government becomes a threat to all individual liberties. Protectionism takes several forms, all of which violate consumer freedom of choice. Tar iffs are the most frequently cited example. In an effort to save Harley-Davidson, the V.S. re cently raised the duty on foreign motorcycles from 4.4 per cent to 49.4 per cent. l Along with tariffs, protectionist policies have grown to in clude import quotas on foreign goods and gov ernment subsidies to V. S. industries. Other forms of protection include regulations and standards on foreign imports, and government procurement policies which favor the purchase of domestic products. Protectionism has its roots in the mercantilist period of the sixteenth to eighteenth centuries. Mercantilist legislation was based on the theory that a nation gains wealth only by exporting its products. This completely overlooks consumers and their needs. In the nineteenth century, the Corn Laws of Great Britain provided a tariff barrier against foreign grains, and caused un told suffering among the poorer masses.

V. S. tariffs originally accounted for 92 per cent of Federal revenue.2 In more recent years, the percentage has fallen to around 1 per cent.3 The decline in percentage was caused by an in crease in the sources of government revenue, not by a reduction in tariffs. The Smoot-Hawley Tariff Act of 1930 raised V. S. tariff barriers to Stephen Lai is a senior at Wichita Collegiate School, Wich ita, Kansas. their highest levels, which provoked foreign re taliation resulting in a disastrous plummet in in ternational commerce. As Ronald Reagan stated, the tariff "helped plunge this nation and the world into a decade of depression and de spair.,,4 Currently the textile, steel, shoe, and elec tronics industries are petitioning the govern ment for protection from foreign imports. V. S. producers also call for raising a protectionist wall against the "flood" of Japanese products and retaliation against Japanese protectionism.

The V. S. limits Japanese car imports and still restricts carbon steel imports to one-fifth of the market, because the Japanese subsidize indus tries such as their machine tool manufacturers and charge a 15 per cent to 20 per cent duty on plywood imports. 5 About 180 trade protection bills are being considered by the House of Rep resentatives, and over 300 in the Senate. 6 With more special-interest legislation interfering with the market, the forgotten consumer pays higher prices for fewer goods. Protectionism has evolved because of the no tion that exports are good and imports are bad. Many people mistakenly believe that every transaction must have a winner and loser, de spite the fact that people trade because, in their own eyes at least, each expects to gain. Protec tionists therefore advocate a "balance of trade" based upon equal sales to both nations. Industries argue for protectionist policies to allegedly protect consumers from low-quality foreign items and to insure their employees' jobs. These companies disguise their true pur pose of gaining security through the elimination of competition.

Many domestic companies demand trade pro380 THE FREEMAN • OCTOBER 1986 tection because of unfair' 'underselling" by for eign nations. These arguments are absurd be cause the very nature of the market is to provide goods at a lower price than the competition. Protectionists then claim that foreigners' trade policies are restrictive and are just cause for re taliation, but such policies serve no purpose other than revenge. While retaliation could result in economic disaster like the Smoot Hawley Tariff, a nation that chooses not to re taliate provides the consumer with the benefits of free choice, and makes a gesture that helps establish friendly relationships. Advocates of protectionism overlook the ben efits of specialization and comparative advan tage. Because resources are scarce, consumers are best served when labor, capital, and raw materials are channeled toward the most pro ductive industries. Trade barriers interrupt this process. As Ludwig von Mises stated, "All that a tariff can achieve is to divert production from those locations in which the output per unit is higher to locations in which it is lower. It does not increase production; it curtails it.,,7 The market, and not the government, is the most ef ficient allocator of resources.

Competition is an incentive to adapt and cre ate new products for the consumer, not an ex cuse to seek government assistance. Without competition, an industry tends to stagnate. Pro tectionism creates opportunities for monopoli zation, where prices can be maintained at artifi cially high levels. As foreign producers improve their products and decrease their costs, protected domestic industries become ever more dependent upon government aid. Because protectionism raises prices, it re duces living standards. In the words of Adam Smith, "In every country it always is and must be the interest of the great body of the people to buy whatever they want of those who sell it cheapest. ,,8 In 1984, tariffs on Japanese cars cost U.S. consumers an estimated 4.5 billion dollars, while clothing duties cost an estimated 8.5 bil lion dollars. 9 Even if employment was pre served, each job supposedly saved by protec tionism cost consumers an estimated $50,000 to $100,000.

10 The consumer pays higher prices when purchasing protected goods, and loses money that could be spent on other products. Many protectionists contend that economic self-sufficiency is needed for national defense. This argument, however, does not justify pro tection of the wool industry or beekeepers. When trade is free, consumers benefit from the products of other nations, and friendship and trust develop. When nations depend on one an other for trade, there is little cause for war. As Frederic Bastiat stated, "If goods do not cross frontiers, armies will." II The United States has fought several wars re lated to trade issues. The Revolutionary War began because Great Britain attempted to con trol U.S. trade. The U.S. fought the Barbary War from 1800 to 1815 to protest the demand for tribute. The War of 1812 protested the blockade of Europe by Great Britain. Even the Civil War was related to the Southern dislike of the Tariff Act of 1828 and the fear of European retaliation.

It is difficult to assess the total cost of protec tionism. But we do know that protectionism re duces consumer choices and raises the prices of protected foreign goods and competing domes tic products. In addition, our tax dollars are wasted on protected industries that require gov ernment subsidies to stay in business. Finally, government procurement policies waste more money through the purchase of overpriced do mestic products which could be bought at less cost from foreign suppliers. To stop this wasting of scarce resources and the spiraling pattern of government interven tion, consumers must recognize that freedom of choice is a basic human right, and demand that it be protected like all other rights. 0 1. Charles P. Alexander, "The Tricks of the Trade," Time, 7 Oct. 1985, p. 34 2. W. M. Curtiss, The Tariff Idea (lrvington-on-Hudson: The Foundation for Economic Education, 1962), p. 35 3. Curtiss, p. 35 4. Richard AIm et al., "FreeTrade Fight," U. S. News & World Report, 23 Sept. 1985, p. 49 5. Alexander, p. 34 6. Gene H. Hogberg, "Prepare for Trade War!" The Plain Truth, Jan. 1986, p. 3 7. Ludwig von Mises, Human Action (New Haven: Yale Univer sity Press, 1949), p. 737 8. Henry Hazlitt, Economics in One Lesson (New York: Arlington House Publishers, 1979), p. 74 9. AIm et al., p. 49 10. Ibid.

11. Curtiss, p. 63 381 Protectionismand AgriculturalPrice Supports by E.C. Pasour, Jr. T rade is highly important to V.S. agri culture. In recent years, export sales have represented about one-fourth of the total revenue from sales of V .S. farm prod ucts. Consequently, there is widespread con cern in the agricultural sector about recent losses in markets for farm exports and about the harmful effects of trade barriers imposed by other countries. Exports of U.S. farm products in fiscal 1986 are expected to be less than $28 billion-down about $16 billion from the record high of $44 billion in 1981. Although U.S. agriculture is generally con sidered to be a bastion of free enterprise, the reality is quite different. Our domestic agricul tural policy has been a perennial albatross in ef forts by the United States to liberalize trade. As shown below, there is an inherent contradiction between domestic price supports and free inter national trade.1 Price Supports and GATT The General Agreement on Tariffs and Trade (GATT) is a multilateral treaty among more than eighty governments (including the United States) established in 1947 to liberalize and ex pand trade through negotiated reductions in trade barriers. The conflict between U.S. farm programs and free trade, apparent when GATT was formed, led the United States to insist on Dr. Pasour is a professor of economics at North Carolina State University at Raleigh.