The Corner

Economists: Protectionism Hurts Consumers

This week, the IGM Economic Experts Panel asked this question to its participants:

Adding new or higher import duties on products such as air conditioners, cars, and cookies — to encourage producers to make them in the US — would be a good idea.

Thirty-nine of the 42 economists responded with resounding “No.” Once the responses were weighted by each expert’s confidence, 70 percent of the economists strongly disagree with the statement and 30 percent disagree.

One of my favorite answers was the one by Stanford economist Kenneth Judd. He writes:

Consumers would lose. A few would gain but there are more efficient ways to transfer income to people.

Exactly. Protectionism is about redistributing income from one (usually large) group of people, including consumers who will be faced with higher prices, to a (usually small) group of producers — those producing the protected good.

Harvard economist and newly minted Nobel Prize winner Oliver Hart adds an important point:

Duties lead to dead-weight losses and also retaliation. There can be losers from free trade but there are better ways to compensate them.

Yep, there are losers from free trade, just as there are losers from competition in general. But on net, the effects of free trade are positive. The real problem from a marketing stand point is that the costs are concentrated on a small group of people who can organize and have incentives to ask for protectionist measures, while the winners are numerous and may not even realize how much they benefit from free trade in the form of cheaper and higher-quality goods and services. Unfortunately, politicians are in the business of giving handouts to those who scream the loudest and who have press offices and lobbyists — the producers — and they ignore those who don’t.

The whole thing is here.

Caroline Baum has a good piece today over at Market Watch titled “Donald Trump’s Understanding of Trade is Exactly Backwards.” It is worth reading entirely but here is a tidbit:

The start of the American Revolution in 1776 coincided with the publication of Adam Smith’s “Wealth of Nations,” which upended mercantilist theory. Economists of all political persuasions understand the benefits of free trade, even if some nations impose protectionist barriers. (Trump economic adviser Peter Navarro may be the exception.)

The entire premise of mercantilist theory makes no sense. In a world of scarce resources, why would a country choose to use those resources, and the required expenditure of time and labor, to manufacture goods for another nation? It is imports, not exports, that make us better off. . . . 

Are there losers with free trade? In the short run, yes. Workers are displaced when businesses close domestic plants and relocate factories overseas. Economists like to say that the costs of trade — shuttered plants, devastated communities, unemployed factory workers — are immediately visible while the benefits are diffuse and harder to identify.

That doesn’t mean the longterm benefits of international trade have outweighed the concentrated short-term costs,” according to a recent paper from the Congressional Budget Office: “How Preferential Trade Agreements Affect the U.S. Economy.”

Finally, it is worth remembering that, on trade issues, Hillary Clinton and Donald Trump are undistinguishable — and that the free-trade issue must make for interesting Clinton-family dinners.

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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