Politics As Usual

Protectionism is surely a fighting word to international traders. So, clearly, the concern must grow when people around the world learn that a candidate urging high tariffs and other protectionist measures has won an important primary in New Hampshire as part of the race to become the Republican nominee for President of the United States.

Well, by the time you read this, many more primary elections will have been held and, so, the fate of Patrick Buchanan and the future of the Republican Party will be more clear. It is legitimate; however, to wonder where Mr. Buchanan’s ideas come from, why so many people are attracted to them and what the implications might be for U.S. policy toward trade.

Mr. Buchanan’s call for massive tariffs, including a 10 percent tariff on anything from Japan, a 40 percent tariff on anything from China and significant tariffs on developing countries, is loudly rejecting the Republican party position of the last generation – that a free economy, with low tariffs, low regulation, and low taxes is the type of economy most conducive to economic growth and most congenial to the preservation of human liberty.

Mr. Buchanan claims to have an economic pedigree rooted in the policies of George Washington, Thomas Jefferson, Abraham Lincoln and Theodore Roosevelt – the four great American Presidents immortalized in the rock of Mount Rushmore – a sight Mr. Buchanan selected for a political appearance. Mr. Buchanan points out that all of these Presidents presided over trade policies which would be considered highly protective today. He claims that high tariffs led the U.S. and other countries to economic success.

Mr. Buchanan happens to be wrong. There is precious little evidence that protectionism helps anyone except those protected and a great deal of evidence that more open trade creates opportunities for all.

For the truth is that a tariff is nothing more than a tax, and its principal effect is to prevent consumers from buying goods at competitive prices. In effect, a tariff is a tax placed on consumers of certain goods to subsidize producers of certain goods.

We will know this. Virtually the entire economics profession has rejected Buchanan’s approach. The interesting question is why does such a counterproductive position attract so much support?

It is here that Mr. Buchanan has tapped into something important in American life. It is true that protectionism is always beneficial for politicians. The reason is simple: protectionism imposes a small cost on a large number of people. A tariff on, say, imported gloves, might cost each American family a few cents during a given year. Yet, to the glove manufacturer, there would be a substantial benefit. As one can imagine, glove manufacturers, their employees, suppliers, etc., as recipients of such a concentrated benefit, are all likely to substantially support politicians with money and votes to keep foreign gloves out of the country. On the other hand, consumers burdened by such a diffused cost, are unlikely to even care enough to note which politician raised the price of their gloves by some small amount.

Mr. Buchanan, a gifted polemicist, has succeeded in tying together the issue of tariffs and foreign trade with a real American problem: a sluggish growth in living standards. For the great American middle class, growth in family income has been obtained in recent decades by an increase in the number of family members working; in other words, more wives went to work outside the home. This trend, though, has pretty much played itself out. Most families already have everyone working who is a good candidate to do so. This means that additional growth in family income has to come the hard way, by people acquiring better skills, education, work habits, and by technology and capital being applied more productively.

Of course, the problem is that greater protectionism is not at all likely to help with any of this. The U.S. already has many tarries and protective laws in industries such as textiles, and the best evidence is that it costs the U.S. hundreds of thousands of dollars to save one relatively low wage job.

Mr. Buchanan does point out one great quandary in American regulatory politics: in the U.S., laws are often passed to regulate the way workers are treated, to ensure minimum incomes, to mitigate the environmental impact of production, etc. All these laws have the effect of increasing the cost of production. Yet, such laws do not generally affect non-U.S. producers shipping into the U.S. This puts U.S. producers at a competitive disadvantage.

This, of course, may all be true, but it doesn’t explain why Mr. Buchanan doesn’t direct his fire to eliminate or reduce this kind of regulation. Instead, he wants to protect these practices with enormous tariff walls.

In the end, though, as wrongheaded as his policies might be, Mr. Buchanan is likely to have a salutary effect on the Republican Party and politics in the United States of America. There is a long tradition in America for the major establishments to absorb the worthy ideas and concerns of radicals, splinter groups, etc. For in a land like America, elections are not the times to sweep our differences under the rug. Instead, these are the moments to let our differences be clearly seen. Then, in that magnificent moment known as an election, in which the will and spirit of the American people manifest itself through the ballot box, a new, more secure consensus is forged.

The people of the United States love their liberty and this includes, despite moments of xenophobia, a love of their freedom to trade with folks all over the world. In the end, I believe this election will serve to ratify the people’s desire for that liberty. It shall serve as a moment when Americans reject the politics of isolationism and shall lay the groundwork for expanded trade, travel and tourism in the decades to come.