What Does Protectionism Protect?

What does protectionism protect?

Some claim that it protects jobs, but that’s not true.  By raising the price of the “protected” good, it reduces quantity demanded, thus reducing the need for labor and other inputs in that particular industry.  Plus, by increasing the price of the protected good, it reduces demand from other areas of the economy just to pay for the new price, costing jobs and inputs into those areas as well (eg, if you have $100 and a suit jacket costs you $50, you have $50 to spend on a night out.  If, due to tariffs, the price raises to $100, you now have nothing to spend on a night out if you buy the suit jacket).

Some claim protectionism protects industries/firms; helps them grow.  That’s not true, either.  As Mercatus Center scholar Dan Griswold reminds us: “Protected industries tend be lazy about innovation and customer service because they are shielded from normal market competition – think the U.S. Postal Service.”  Protectionism tends to weaken the protected industries, not strengthens them (this, in turn, could lead to perpetual calls for protection by the industry.  A good example of this is the US sugar industry.  The subsidies and tariffs it receives were only supposed to be temporary, while the new American nation got on her feet.  Almost 300 years later, they’re still around).

Some claim protectionism protects the economy, it “makes us great” by encouraging exports and reducing imports.  This isn’t true either.  As Dartmouth College professor Douglas Irwin reminds us: “a tax [tariff] on imports is equivalent to a tax on exports. Any restraint on imports also acts, in effect, as a restraint on exports.”  Whether you measure economic gain in the number of exports or the total volume of trade, tariffs reduce both, so it can’t encourage economic growth.

So what, then, does protectionism protect?  Nothing, so far as I can tell.  All it does is reduce the number of goods a society can enjoy by increasing prices.  This is why I call protectionism by its proper name: scarcityism.

5 thoughts on “What Does Protectionism Protect?

  1. Protectionism is a bad idea but it does protect businesses and workers who can’t compete with the foreign producers in their industries.

    It’s bad for everybody else but it does protect them and we ought to admit it.

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  2. “So what, then, does protectionism protect? Nothing, so far as I can tell. All it does is reduce the number of goods a society can enjoy by increasing prices. This is why I call protectionism by its proper name: scarcityism.”

    Exactly right, Jon! Protectionism is just a nice-sounding name for crony capitalism.

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  3. A person like this doesn’t understand opportunity cost and that spending $.17 more for one thing precludes that money being spent on other things which, in the aggrgate, adds up to a fair amount of money.

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