Your thoughts on protectionism?

[Petrolheadia]

In this thread I would like to talk about protectionism.

Protectionism is a notion that a nation's market should be protected from imports in possible ways, including, but not limited to, punitive taxation of imports, import quotas or incentives for buyers of domestic products.

Personally, I think protectionism is a bad idea. It gives an unfair advantage to domestic companies, giving them an ability to sell at overly large prices, and, if the domestic market is their largest, might lower the competitiveness of them on export markets, due to the domestic brands building bad designs that, because of the law, do not have any competiton sufficient to push progress.

And what do you think? Is protectionism a good idea?

[Radiatia]

Protectionism is a terrible thing. Trade barriers are in my view the biggest cause of global inequality and poverty that exist today.

[Zakuvia]

There's a reason why strictly protectionist nations never seem to get out of 3rd world status. It's because (relatively) uninhibited trade and commerce make for the best possible market outcomes both for the producers who have a broader market to sell to, and the consumers who have a broader base of choices and prices to pick from.

Actually, isn't 'protectionism is a horrible thing' an Econ 097 bullet point?

[Arkolon]

Should generally be avoided but if used carefully, for example to cradle a nascent industry in a developing country, can be beneficial.

[Soled]

Apply only where necessary. For example, I would not like to see a gigantic mega-corp like Exxon taking control of all of Norway's oil and natural gas extraction facilities, because that would leave one of our most important sources of revenue in full limbo. I don't think the Norwegian state (which owns 67% of Statoil's shares) would allow that to happen though.

[Forsher]

There's a reason why strictly protectionist nations never seem to get out of 3rd world status. It's because (relatively) uninhibited trade and commerce make for the best possible market outcomes both for the producers who have a broader market to sell to, and the consumers who have a broader base of choices and prices to pick from.

There's a quote that I remember floating around on NSG about the difference of opinion on free trade between economists who study the contemporary economies of the world and those who look more at the economies of the past. I can't remember who wrote it (there are several excellent candidates) and because I found something with much the same point, I have not endeavoured to find it with much effort.

Does it, though? Free trade has a decent track record at sustaining wealth, but creating it? I don't think so. The United States, Great Britain and most of Continental Europe industrialised behind a wall of tariffs and protectionist policies.

Great Britain was engaged in protectionism throughout the Industrial Revolution to develop domestic manufacturing, until the middle of the nineteenth century, where free trade was conveniently implemented (since Britain could cheaply import raw materials and export expensive, manufactured goods). The United States had a natural high-cost ocean barrier to British manufactured goods, but still developed its industrial sector behind a very stringent wall of tariffs and protectionist policies, and only then endorsed free trade. Other now-developed countries emulated that pattern, too.

What you have to understand is that free trade's entire rationale is based on free trade working in all directions. This very often isn't the case and for many third world (and/or small) countries today free trade, at best, means some of their products get to come in without barriers while all their imports face no barriers. Thus, it doesn't really make sense to talk about comparative advantage because the market is being distorted. Another quote of Joseon's also explains how comparative advantage doesn't mean the value is much the same... uncut diamonds aren't as valuable as cut diamonds, for instance, but third world countries are much more likely to import finished goods made from their exported raw materials than vice versa.

Also, free trade is rarely extended to labour flows (cf CER), which is also interesting.

Actually, isn't 'protectionism is a horrible thing' an Econ 097 bullet point?

097 is a new one to me. People tend to talk about Blah 101. Anyway... quite possibly not (if we assume 097 is foundational to something like 101). If you're teaching economics sensibly you start from the point (i.e. scarcity/choice) and then move on to allocation (firms and markets), and then make things a bit more complex by introducing the notion of an economy and then the notion of international trade (which in my experience is just an extension of normal markets rather than the economy per se, so I may have these last two steps a bit confused). This will kinda pop up in 101 on the basis that will very likely assume no foundational knowledge.

Should generally be avoided but if used carefully, for example to cradle a nascent industry in a developing country, can be beneficial.

Alternatively, instead of mucking around with "market forces" you can use something which responds to different forces (i.e. the govt.), which you may or may not believe to be more effective... and in the case of poor nations is probably not viable (where would such a govt. get the money?).

[Zakuvia]

A whole lot of mind-expanding economics and...

What you have to understand is that free trade's entire rationale is based on free trade working in all directions. This very often isn't the case and for many third world (and/or small) countries today free trade, at best, means some of their products get to come in without barriers while all their imports face no barriers.

Was that a typo? Am I wrong in thinking you meant to say some of their products get to go out without barriers? Not bolding for cruelty, I'm just trying to understand. Your post was great and opened some questions in my mind. Also, the 097 jab was just at how fundamental the concept is (in my mind). Yes, there are pre-101 courses they typically offer in US high schools for kids who don't require remedial courses before graduation. It's neat because they count for college credit if they're linked to a local college or accrediting institute.

[Wolfmanne2]

Apply only in response to the protectionism of other nations. There are few exceptions (agriculture for instance) where it's acceptable.

[Esternial]

As with a lot of things, not inherently bad but it will be if wielded poorly.

[Arkolon]

Should generally be avoided but if used carefully, for example to cradle a nascent industry in a developing country, can be beneficial.

Alternatively, instead of mucking around with "market forces" you can use something which responds to different forces (i.e. the govt.), which you may or may not believe to be more effective... and in the case of poor nations is probably not viable (where would such a govt. get the money?).

Tariffs don't require money, subsidies do. Poor countries could put up barriers for residual goods being dumped onto their markets.

Apply only in response to the protectionism of other nations. There are few exceptions (agriculture for instance) where it's acceptable.

Agriculture as in maintaining agriculture subsidies?

[Freefall11111]

Free trade is one of the greatest creators of wealth in history, therefore protectionism is bad.

[Forsher]

A whole lot of mind-expanding economics and...

What you have to understand is that free trade's entire rationale is based on free trade working in all directions. This very often isn't the case and for many third world (and/or small) countries today free trade, at best, means some of their products get to come in without barriers while all their imports face no barriers.

Was that a typo? Am I wrong in thinking you meant to say some of their products get to go out without barriers? Not bolding for cruelty, I'm just trying to understand. Your post was great and opened some questions in my mind. Also, the 097 jab was just at how fundamental the concept is (in my mind). Yes, there are pre-101 courses they typically offer in US high schools for kids who don't require remedial courses before graduation. It's neat because they count for college credit if they're linked to a local college or accrediting institute.

Yes, that is a typo.

Actually, I'm trying to say that free trade isn't fundamental in the sense that if you tried to introduce people to economics starting with ideas like free trade (or even GDP growth for that matter), you end up giving them quite the wrong idea. It's certainly fairly basic though. Maybe, say, a load-bearing column in the but not the foundation.

Alternatively, instead of mucking around with "market forces" you can use something which responds to different forces (i.e. the govt.), which you may or may not believe to be more effective... and in the case of poor nations is probably not viable (where would such a govt. get the money?).

Tariffs don't require money, subsidies do. Poor countries could put up barriers for residual goods being dumped onto their markets.

I wasn't actually envisioning subsidising... more direct investment. But, yes, the point was that while govt. action (beyond trade barriers) is an option, it is less affordable.

That is, I was pointing out it was an option simply to point out it is an option, and I understand and agree that this option status was a red herring vis a vis the particulars of the conversation.

Free trade is one of the greatest creators of wealth in history, therefore protectionism is bad.

A narrow viewpoint indeed.

Apply only in response to the protectionism of other nations. There are few exceptions (agriculture for instance) where it's acceptable.

As a New Zealander, I am obliged to disagree.*

*Ah, NZ, too small to have any particular economic clout to use in negotiating trade agreements, too comparatively advantaged in agriculture to gain from loosening anything else.

[United Confederate Coalition]

Free trade increases the wellbeing of everybody involved by allowing the respective partners to do what they have a comparative advantage in. However, if key industries are not protected, a nation could become very reliant on the exports of another, with may be undesirable.

[Trollgaard]

I've always thought that certain industries should be protected to some extent, such as agriculture and defense related manufacturing, as a not having food generally means bad news to people and nations, and not being able to produce war material is makes a nation vulnerable.

[Internationalist Bastard]

No, I think open trade is the first and most important step to globalization

[Internationalist Bastard]

I've always thought that certain industries should be protected to some extent, such as agriculture and defense related manufacturing, as a not having food generally means bad news to people and nations, and not being able to produce war material is makes a nation vulnerable.

Meh, military industry does well so long as military spending is up. Also, lot's of companies with military contracts have civilian business too. Agree on agriculture though.

[Novus America]

Free trade is one of the greatest creators of wealth in history, therefore protectionism is bad.

Current China, 70s Japan, 1800s US and Britain all prove protectionism can be quite a great wealth producer.

It is a useful but also potentially dangerous tool if misused.

Free trade is a just a theory anyway. True free trade does not exist in practice. So reality you do not want to much protectionism or no protection. You need a balance.

[Rodrania]

I believe there should be a balance between protectionism and outright completely open trade. My beliefs have been strengthened after President Macri was elected in my country, Argentina. Complete liberal, he almost completely removed every single trade barrier and other protectionist methods to keep the prices at bay. Long story short, prices rose tremendously, and people are starting to lose their jobs. Fun times, in my opinion.

Don't get me wrong, I do not support hardcore protectionism, but I believe 3rd world countries such as Argentina REQUIRE some minor barriers in trade to help local industry be capable of competing with foreign industry and after the economy in general is strengthened, more liberal views can be safely taken. Again, this doesn't mean automatically closing all imports or putting hilariously high tariffs on them.

TL;DR: Protectionism is a double edged sword. In excess and in the wrong place, it fucks your shit up. Moderately, and in the right place, it helps you succeed.

[MERIZoC]

Free trade is one of the greatest creators of wealth in history

I mean so is war, if you want to look at it that way.

[Dugins Revolutionary Army of Fun]

I support !

[Valaran]

I don't normally find it to be a good thing, on balance. Although it can be used effectively, often the mindset leading to projectionist policies (and their implementation) means that it is used to mask uncompetitiveness, and implemented in ineffective or detrimental ways (which is a good chunk of why people are against such policies).

[Nordengrund]

Protectionism is sometimes necessarily, but a purely protectionist policy in the long- term is not beneficial.

[Ghondra]

Personally I am a Student of Friedrich List. Previously I followed Adam Smith's school of thought, if with an Interventionist bent, but then I read This excellent article by the Atlantic. Which exposed me to List's teachings. He argues that wealth belongs to the nation that has the means of production. The US, Germany, UK and now China.

In fact, the United States, after the Revolutionary war wasn't outproducing Britain in anything, however after high tariffs, central planning and Government Intervention was institutionalized by Alexander Hamilton (yes that Hamilton ) when he was the Treasury Secretary, US production slowly outpaced the rest of the world, even during the ACW tariffs were in the mid 20 to low 30% until by the 1900s the US was the largest economy in the world. The same can be applied to Bismarck's State Capitalism.

[Ghondra]

It wasn't until Britain was the largest Economy in the mid 1800s and the USA in the late 1800s and late 1900s that it began putting in place Laissez Faire economic policies. Free Trade sustains wealth but it doesn't create it. Not with third world countries at least. If there is no protective barriers cheap foreign goods would drive domestic companies out of business, meaning less jobs which make the country poorer.

[Aelex]

Best when blended with some laissez-faire. So basically protectionism is only good when it's interventionism.