« Down With Economic Nationalism | Main | Must Any Job Necessarily Be Done by Human Labor?» Don Boudreaux
December 08, 2007
The Moment Somone Must Explain that He or She Isn't a Protectionist, You Can Bank on that Person Being a Protectionist
Don Boudreaux
Here's a letter that I sent a few days ago to the Financial Times:
Hillary Clinton needs a language lesson. She favors only trade that is found by government to "benefit[] our workers and our economy" and that promotes "rising standards of living across the world" ("Full Transcript: Hillary Clinton Interview," December 3; my emphasis). She then asserts that "There is nothing protectionist about this."
Oh please.
Protectionism exists whenever, wherever, and whyever government artificially raises its citizens' costs of buying imports. Protectionism has forever rested on the false notion that government officials know best how consumers should spend their money. And it attempts today to hide its ugly face behind the smiling mask of allegedly noble intentions, such as those mouthed by Sen. Clinton.
Sincerely,
Donald J. Boudreaux
Posted by Don Boudreaux in Politics, Trade | Permalink
TrackBack
TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d834518ccc69e200e54faf42368834
Listed below are links to weblogs that reference The Moment Somone Must Explain that He or She Isn't a Protectionist, You Can Bank on that Person Being a Protectionist:
Comments
Only favoring the 'right sort of trade' sounds like there's a list of agreed upon criteria that should be met. I'd love to see this. Other than already illegal below-cost dumping, what type of trade will hurt the US economy or US workers?
"Protectionism is the ally of isolationism, and isolationism is the Dracula of American foreign policy."
William G Hyland, former national security adviser at Washington University, St Louis, quoted in the NY Times 17 May 87.
Posted by: The other Eric | Dec 8, 2007 2:56:30 PM
"Protectionism exists whenever, wherever, and whyever government artificially raises its citizens' costs of buying imports."
So I guess we should get rid of sales taxes on foreign-made products, and hike up the sales tax on domestic products to make up for the lost revenue? That's not free trade--that's reverse protectionism--hiking up the price of domestic products in order to exempt taxation on foreign products.
The purpose of a revenue tariff (as opposed to a protective tariff) is to feed government coffers. That's it. It's a tax, it is no more pleasant or unpleasant than any other form of taxation: income taxes, sales taxes, property taxes, whatever.
If you insist on zeroing it out, then government has to hike up taxation elsewhere, dollar for dollar. Not only that, hiking domestic taxation hurts domestic manufacturers, putting them at a competitive disadvantage to foreign producers, causing them to lose business and jobs, reducing the taxes they can feed government coffers. So you then need to hike income/corporate taxes even MORE as a result to make up for the lost revenue, causing a snowballing effect. That $1 you saved in revenue tariffs is now costing you $4 in taxes elsewhere.
Those opposed to free trade aren't necessarily anti-import. You still need imports, *tons* of imports, to pay the taxes, just like you still need people to buy things for sales taxes to work. That's how we used to do things in the 19th and much of the 20th centuries, and we didn't even need an income tax as a result.
Within certain percentages, the revenue tariff is the most efficient of all the taxes. $1 in revenue tariffs will do as much good as $4 in income taxes. That's why the federal government could exist on it alone for so much of our nation's history.
Glen
Posted by: Glen | Dec 8, 2007 8:17:03 PM
This happens all too often: "I support free trade, but we've lost so many jobs to China, trade deficits, etc." or "I like free market, but we don't have free markets, therefore..." or "I support [fair, smart, some modifier that negates free] trade" or "I support capitalism, but do we really need all this private property?"
I think with free trade, foreign goods would be treated the same as domestic goods. Protectionism raises the price of imports in order to discourage and ultimately prevent consumers from purchasing them, not to raise revenue.
I never understood why "dumping" was illegal. Bad long-term policy, yes, but is it much different from a retailer selling loss-leaders below cost?
Posted by: Jason | Dec 8, 2007 8:24:41 PM
Glen, what a brilliant comment! I know we have never scene and I fear we never will see again a defense of the retail sales tax used to justify protectionism. Or maybe you were being ironic, purposely reading something extra into Prof. Boudreaux's pithy letter to the editor that nobody in their right mind would intend. The irony being that your saying Prof. Boudreaux did that to Hillary's transcript. Except that Hillary gives us gems like this:
"And I agree with Paul Samuelson, the very famous economist, who has recently spoken and written about how comparative advantage as it is classically understood may not be descriptive of the 21st century economy in which we find ourselves."
and this:
"And I also believe that a smart energy policy fixing healthcare can provide stimulus of their own. If we can get healthcare inflation down that helps the average American. If we can get gas prices down that helps us move towards a more hjomegrown energy that will also help us."
WTF is not a global trade organization. Egads.
Posted by: Brad | Dec 8, 2007 9:23:36 PM
P.S. "Seen" not "scene". And is it just me or have the Hillary Dems become the party of the "time out"? Sadly, Mitt Romney would solve the sub-prime mortgage crisis by giving everyone involved a spanking.
Posted by: Brad | Dec 8, 2007 9:29:27 PM
It's like when someone says, "It's not about the money." That's when you can be sure it's about the money.
Posted by: Flash Gordon | Dec 9, 2007 2:13:50 AM
Donald J. Boudreaux says: “Protectionism has forever rested on the false notion that government officials know best how consumers should spend their money.”
Yes, but let us not diminish the importance of those many real economic actors that have a vested interest in sustaining those false notions… so that government officials can work in their favor.
Posted by: Per Kurowski | Dec 9, 2007 9:55:05 AM
Glen and all,
I agree that the government did and should run entirely on excise taxes, but I see nothing wrong with the following situation which would be free trade, fair trade, and nonprotectionist.
I buy my typewriters from German manufacturer and pay an export tax to Germany of 5%, when they arrive in the USA I wholesale them and pay a sales tax of 5%, both taxes I recoup in my price. The retailer marks up the price and collects a 5% sales tax. The Germans profit, I profit, and the retailer profits.
An importer doing wholesale in Germany does exactly the same thing in reverse. No one loses, governments get their share of the pie, and competition produces the best products at the best prices the customer can
ever hope to obtain.
Now if I buy my typewriter ribbons from a manufacturer in California, he collects a 5% tax and sends it to D.C., I wholesell the ribbons and collect a 5% tax and send it to the government, the retailer collects a 5% sales tax and sends it to the government.
There is no difference between the first scenario and the second.
We will never get that utopia.
Posted by: vidyohs | Dec 9, 2007 11:42:04 AM
Just a question - what do we think the economic policies would add up to in practice for each of the major presidential candidates? Is there an "economist's guide" to the candidates available online? Thanks!
Posted by: David P. Graf | Dec 9, 2007 1:06:52 PM
Hmm, where did you get the idea that you have the right to buy cheap stuff?
Posted by: Nick | Dec 9, 2007 2:07:28 PM
"I'm not a racist, but [insert something blatantly racist]."
About like that.
Posted by: Swimmy | Dec 9, 2007 4:25:32 PM
Jason: "is it much different from a retailer selling loss-leaders below cost?"
Yes, it is different.
U.S. Department of Commerce definition of "dumping":
Dumping occurs when a foreign producer sells a product in the United States at a price that is below that producer's sales price in the country of origin ("home market"), or at a price that is lower than the cost of production.
First, dumping may even include instances where sale of a product still earns a profit, but simply less profit than in the "country of origin".
Second, the "cost of production" above refers to total allocated cost and not just variable costs of production. Domestic businesses are not accused of dumping when they sell below total cost of production in order to eliminate excess inventory, or to gain entry to a market, or any other reason.
The international legal definition according to GATT is:
"Product export from one country to another at a price below normal value."
Predatory pricing laid down in anti-dumping law
True loss leaders of retail businesses earn no profit and are sold for less than their variable cost.
Posted by: John Dewey | Dec 10, 2007 6:22:34 AM
Qoute from Glen: "If you insist on zeroing it out, then government has to hike up taxation elsewhere, dollar for dollar."
Maybe you could explain why?
Posted by: Keith | Dec 10, 2007 7:55:27 AM
"Hmm, where did you get the idea that you have the right to buy cheap stuff?"
Well Nick, who says you have the right to tell me whom I can buy from? So many people are concerned about 'happiness' right now in economics. I'd be happy if more people would mind their own business.
Posted by: Tom | Dec 10, 2007 9:27:46 AM
It seems like a lot of candidates this election cycle have trade rhetoric that's, well, just plain odd. Clinton's the worst, followed by Huckabee's, "I believe in free trade but it must be fair trade."
Posted by: Will | Dec 10, 2007 2:00:49 PM
Quote from Glen: "If you insist on zeroing it out, then government has to hike up taxation elsewhere, dollar for dollar."
From John Dewey: Maybe you could explain why?
I'll try. There are two types of tariffs:
protective tariffs: high rate, designed to force people to buy domestic, *not* meant to provide government revenue (because that would mean that people are still buying foreign.) I am as fiercely opposed to these as any free-trader is.
revenue tariffs: low rate, designed to fatten the federal piggy bank, *not* meant to compel people to buy domestic (because if they did, that meant no money would be going into gvt. coffers) I'm completely in support of these.
Let's say we had as 12% revenue tariff on foreign made products. That money is not thrown away--it goes into the federal treasury, and allows for either tax relief or more services elsewhere. Let's say it raises $400 billion per year for the federal treasury. Now, if you insist, "Oh! We must have free trade! It must 0%!!!", OK, then, you've just zeroed out that $400 billion. The government still needs to make up that revenue shortfall, however, and it will come across in higher income taxes, corporate taxes, property taxes, however you see it. Ultimately, there is no such thing as a free lunch.
*Worse*, if those higher government taxes hurt domestic industry, causing lost jobs, now you need to raise taxes further, because (1) unemployed can no longer contribute income taxes, increasing the burden on those still working; (2) unemployed need expensive social benefits, commit crimes, need incarceration, etc., all requiring you to raise incomes taxes even *higher*. Which causes a snowballing effect. You've replaced $400 billion via tariff revenue with a need for $700 billion in income taxes. What good are 0% revenue tariffs if you need a 50% overall tax rate as a consequence?
I support 8-12% revenue tariffs, with the revenue used to reduce taxation on domestic manufacturing, giving them more breathing space. The consumers in turn get the dividend benefits--less unemployment means more people paying income taxes and fewer people needing expensive social services, all of which causes consumer income taxes to drop considerably as well. You still will have tons of imports, which is good, because again, they fatten the federal piggy bank, but we will have a little bit more domestic manufacturing vitality due to U.S. companies not having such a big tax bill.
Posted by: Glen | Dec 12, 2007 4:10:04 PM
Glen, it was Keith, not John Dewey, who asked for the explanation. But since you alerted me to your post, I'll give my opinion: a tariff is a tariff.
Glen: "I support 8-12% revenue tariffs, with the revenue used to reduce taxation on domestic manufacturing, giving them more breathing space."
Pure protectionism, sir, and guaranteed to harm the U.S. consumer. I cannot imagine that you were serious when you wrote that a tariff on foreign manufacturers, which gives domestic manufacturers "breathing space", is not a protective tariff. So certainly this post of yours is a joke, right?
Posted by: John Dewey | Dec 13, 2007 7:14:29 AM
Glen, here's a little wisdom from the 19th century:
Charles Fairchild, September 29, 1892, in the New York Times, on the subject of revenue tariffs:
The protectionist says "How wise the people have been to tax and burden themselves, how wise they are to pass such laws such that it takes twenty bushels of wheat to clothe a man instead of ten, for see how prosperous they are!"
But the Democrat says: "Our prosperity is lessened as our burden is increased. A duty is a tax, a tax is a burden. Remove our burdens and our prosperity will be so much the greater."
Ex-Treasury Secretary Fairchild's editorial made this excellent point:
It is easy to see that the power of Government can be so used as to divert men from employments which they would naturally follow except for such Government interference; but it is impossible to see how the result of this can be other than loss to the community as a whole.
MEANING OF REVENUE TARIFF; AS ILLUSTRATED BY SOME OF THE FALLACIES OF PROTECTION.
Posted by: John Dewey | Dec 13, 2007 5:47:59 PM
[Quote: Glen, it was Keith, not John Dewey, who asked for the explanation.]
Sorry about that. Misread the blog thread.
[quote: "The protectionist says "How wise the people have been to tax and burden themselves, how wise they are to pass such laws such that it takes twenty bushels of wheat to clothe a man instead of ten, for see how prosperous they are!
But the Democrat says: "Our prosperity is lessened as our burden is increased. A duty is a tax, a tax is a burden. Remove our burdens and our prosperity will be so much the greater."]
This was completely true in 1892, because back then we didn't have an income tax--government used revenue tariffs to fund government. (They could *not* have been protective tariffs, because, by definition, they would have been so high to compel the purchase of the domestic good, and, as a result, no money would have gone to the federal treasury.) If the person above was speaking 100 years later, he would be talking about reducing *income* taxes instead.
If we had followed that Democrat's idea in 1892--OK, let's get rid of all revenue tariffs!--your celebrating would have lasted all of three weeks, because Congress would have immediately needed to put in an income and corporate tax to make up for the lost treasury revenue. Sadly, there's no such thing as a free lunch.
Posted by: Glen | Dec 15, 2007 5:31:20 AM
Glen: "They could *not* have been protective tariffs, because, by definition, they would have been so high to compel the purchase of the domestic good, and, as a result, no money would have gone to the federal treasury."
I do not think this is correct, Glen. A protectionist tariff need only raise the price of an import by enough to make consumers indifferent to purchasing imported or domestic goods. A tariff is protectionist any time it interferes with markets where imports are priced below exports.
The editorial is very clear that the tariff would - or did - "divert men from employments which they would naturally follow except for such Government interference". What else could this sentence by Secretary Fairchild refer to in this editorial on tariffs if not the protection of domestic jobs? Quite frankly, I would accept the contemporary assessment of a Treasury Secretary over that of a blog commentor 110 years after the fact.
Glen: "Sadly, there's no such thing as a free lunch."
Surely the use of one of his favorite phrases to promote protectionism must leave Milton Friedman spinning in his grave.
There are many forms of taxation, sir. IMO, the best forms are direct user fees, where those directly receiving benefit pay for those benefits. Tolls on highways are one such user fee. Assessing meat producers for the cost of USDA inspectors would be another.
The worst forms of taxation are those which most distort economic decisions. All tariffs fall into this category. All tariffs force consumers to spend more on goods than they otherwise would.
Posted by: John Dewey | Dec 17, 2007 9:58:54 AM
Glen,
Since you used a fovorite expression of Milton Friedman, I think it appropriate that we consider his interpretation of U.S. tariff history:
"The repeal of the corn laws in 1846 is generally regarded as the final triumph of Smith after a 70-year delay. In fact some reductions in trade barriers had started much earlier, and many nonagricultural items continued to be protected by tariffs until 1874. Thereafter only revenue tariffs remained on such items as spirits, wine, beer, and tobacco, countervailed by excise duties on competing domestic products."
The Tide in the Affairs of Men
Acording to Milton Friedman, the only remaining tariffs after 1874 were applied equally to domestic goods in the form of excise taxes. That is not saying he favored such taxation. But it is clear the tariffs of the late 19th century were not used "to reduce taxation on domestic manufacturing, giving them more breathing space"
Posted by: John Dewey | Dec 17, 2007 10:09:20 AM
Glen: "This was completely true in 1892, because back then we didn't have an income tax--government used revenue tariffs to fund government. (They could *not* have been protective tariffs"
Glen, I think you may be referring to some other period than 1892. The 1890 McKinley tariffs were protective, and their proponents intended them to be.
Republican Congressman William McKinley argued during the election of 1888:
"Free foreign trade gives our money, our manufactures, and our markets to other nations to the injury of our labor, our tradespeople, and our farmers. Protection keeps money, markets, and manufactures at home for the benefit of our own people."
Here's one historian's view on 1890's tariffs:
"During the late nineteenth century, Republicans strongly supported tariffs to protect growing industries within the United States from foreign competition.The McKinley Tariff was passed into law in 1890, and it dramatically increased the tax rate on foreign products."
Posted by: John Dewey | Dec 17, 2007 11:01:23 AM
What I want for Chritmas is a lap top please.
If I be good then send me a e-mail on
w ror.com how is it in the north pole do you
like it? If you like it then I mite go their!
My sister is a good girl and me I hope. I
love Christmas when you get all the presents
and candy! So have a good year at the North
Pole! I am so EXCITED about Christmas! It is a
FUN Holiday! Buy-buy for now.
Love,Sophia and Morgan Cobuzzi and family.
Posted by: Santa | Dec 21, 2007 8:58:22 PM
The comments to this entry are closed.
