The Protectionism Delusion
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The Protectionism Delusion
Summary:
Economists have long identified that free trade, grounded in the principle of comparative advantage, leads to a more efficient global allocation of resources and enhances material well-being. In contrast, protectionism?"barriers to free trade?"diminishes these benefits by diverting resources from efficient to inefficient uses. This often results in monopolies, hindering competition and failing to meet consumer needs.Article:
Economists agree that free trade, supported by the principle of comparative advantage, enables a more efficient global distribution of resources and boosts material prosperity. However, protectionist policies?"barriers that restrict trade?"undermine these benefits. By catering to varied demands, countries divert resources from low-cost to high-cost inefficiencies, encouraging monopolies that damage the economy and fall short of consumer expectations.
The hidden costs of protectionism lie in the increased prices of goods, driven by embedded trade barriers. Whether due to a misunderstanding of trade benefits or political motives, governments may impose these barriers, leading to higher prices not immediately apparent to the public.
Despite the clear logic favoring free trade, barriers persist. Tariffs, which are essentially taxes on imports, serve to generate revenue or offer protection. Protective tariffs aim to shield domestic industries from foreign competition, putting foreign producers at a disadvantage without necessarily blocking imports. Import quotas cap the volume of goods that can be imported within a certain period, often more effectively stifling international trade than tariffs. Non-tariff barriers (NTBs) include licensing requirements, stringent quality and safety standards, and cumbersome customs procedures, such as those used by Great Britain to restrict coal imports. Voluntary export restrictions (VERs) involve foreign firms "voluntarily" limiting exports to a specific country.
Exceptions to protectionism do exist. The infant-industry argument can be justified under certain conditions, as can the self-sufficiency argument on political-military grounds. Yet, these arguments are prone to abuse and overlook alternative means of promoting industrial growth and military self-reliance. Most other arguments are emotional, incomplete, or fallacious, focusing only on the immediate effects of protection and ignoring that a nation must import to export.
In conclusion, the illusion of protectionism is that the benefits it provides to protected industries and their workers are outweighed by greater economic losses. This results in inefficiency. Historically, free trade has driven prosperity and growth, while protectionism has yielded the opposite effects.
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