When the economy goes into a recession, people grumble about the loss of jobs which are perceived to be going overseas. For some, the solution is to protect American jobs by erecting trade barriers. While the arguments for protection may seem compelling, there are equally compelling arguments for free trade with no government restrictions.
The Free Trade Argument
Since the time of Adam Smith, economists have promoted free trade between nations. County A should not produce trucks if it agriculturally based. County B should not raise crops if it is industrially based. If each nation specializes in products where it has a comparative advantage over the other, the two can trade their surpluses and each nation will be better off than it would have been without trade. Proponents of free trade point to the growth of the world economy which has generally flourished with free trade, but not all accept this argument.
Protectionism at Work
Protection of domestic workers is implemented in various ways, some more obvious than others. Tariffs, taxes on imported goods, and quotas, limits placed on the amounts that can be imported, are the two most obvious. Regulations restricting imports for health and safety -- blocking beef imports for fear of mad cow disease, for example -- can protect domestic industries. Government policies that require procurement from domestic companies effectively excludes foreign competition. Export subsidies make domestic products more competitive on the world market. While the intent of these policies is to create and protect jobs at home, they sometimes backfire and have the opposite effect.
When Protectionism Hurts
The most extreme example of protectionism was the Smoot-Hawley Act signed into law by President Hoover in 1930. This legislation raised tariffs on over 20,000 imported products to record-high levels. Not only did that make the goods more expensive for Americans, it invited retaliation from America's trading partners, who responded by implementing their own tariffs on American-made goods. While this example is extreme, protectionism on smaller scales hurts consumers. Protectionism distorts markets and results in higher prices. It creates inefficiencies in markets since it blocks more efficiently produced goods from entering the country. Without the pressure of foreign competition, quality may suffer. Consumers are hurt when higher prices limit their purchasing power.
Benefits of Protectionism
For all the problems caused by protectionism, some arguments in its favor are persuasive. For developing nations attempting to grow a fledgling economy, protecting so-called infant industries until they can compete in the global market is a legitimate concern. Protecting industries that are critical to the national economy or defense is a generally accepted practice. If foreign-made products do not meet domestic quality or safety standards, they can reasonably be prevented from entering the country. Protection in the form of anti-dumping barriers are an accepted way to combat predatory practices of other nations. While the United States remains firmly committed to free trade, there are and will always be exceptions to that policy.
Besides economic considerations, moral and ethical concerns enter the debate about free trade versus protectionism. Not all countries have the same labor and environmental standards that prevail in the U.S. and other developed countries When foreign workers are exploited and the environment is degraded, the true costs of production are not included in the prices paid in importing countries. Improving standards in developing countries is a call shared by human rights advocates, environmentalists and protectionists alike. Raising foreign standards, it is argued, will not only improve the working conditions of workers in other countries but will also protect jobs in the U.S. and other developed countries by "leveling the playing field" between low- and high-wage countries.