I am finally writing the post I promised as a reply to cjb56's comments.I know I have been promising to do so for almost a week now, and I am very sorry for the delay, but it is finally here. To everyone else who is reading this, please do not let the length and the opening sentences discourage you, this is not of interest to only cjb56, I hope it will be of general interest.

I suppose since I already started with a boring disclaimer, I can add another before I begin. I am sure in the following essay I will repeat the arguments of Bastiat over and over again. Some of this will be intentional, but most will be accidental. It is almost impossible to write of protectionism without covering the same ground as Bastiat. Not because the man was a genius, though he may have been, but simply because he wrote SO MUCH. The man wrote so many essays on protectionism that it is almost impossible to find a topic he did not cover. The volume of his writing alone means that everything you say will probably have already been addressed. Not that Bastiat cannot be improved upon, many writers have done so, but even then the arguments they made, at least in their most basic form, had usually been anticipated in one of Bastiat's endless collection of essays.

And now, with my boring disclaimers out of the way, let me begin.

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Protectionism takes a number of forms, and has gone under a number of names throughout history. It is an unusual political and economic philosophy in that one rarely meets a consistent protectionist (for reasons I will discuss later), the proponents are almost always willing to allow a host of exceptions or half measures. This also leads to the usual protectionist statement, "I am not a protectionist", which is technically true, as so few consistent protectionists exist. But, for our purposes, even a half-protectionist is still a protectionist, as, once you admit the protectionist logic, the remaining steps inevitably follow, whether the original proponents advocated them or not.

But I will speak about the inexorable march of protectionism later, for now let us look at the basic tenets of protectionism. In other words, let us ask what protectionism is.

Protectionists are interesting in that there is no single underlying philosophy. The mercantilists of the late Renaissance promoted protectionism as did the union movements of the early twentieth century, but from completely opposite motives. It is not so much the underlying philosophy which defines the protectionist as the measures which they promote. Protectionism is, in its most simple form, the argument that the nation's industries need protection form foreign competition. Whether this is to protect merchant profits, secure labor's higher ages, or defend against economic warfare does not matter as much as do the measures proposed.

Now I will admit this is unusual, as my usual position is that the underlying philosophy of a movement is all important (as I argued about environmentalists and liberals, for example), while specific proposals are irrelevant. And normally that is true, but protectionism is a special case. The reason being that protectionism has a logic of its own, economic nationalism, which all proponents accept once they argue that markets must change at the border. Once they accept this economic nationalist view, their earlier beliefs cease to matter, and the nationalist philosophy begins to drive the future changes. In short, whether starting out supporting labor, merchants, or national defense, all protectionists end up economic nationalists once they accept the protectionist premises.

And now to address those beliefs.

First, and foremost, the protectionist errs in looking at only half of any economic transaction. The protectionist position looks at the nation as a whole as only producers, ignoring the fact that every individual acts not only as a producer, but as a consumer as well. The reason that we engage in trade at all is because we can produce some good in sufficient quantities that it is better for us to trade that good for what we want rather produce all of our needs ourselves. International trade is no different, we trade with other nations because they produce things more cheaply than we can, making it beneficial to us to produce another good and trade for our needs rather than produce everything at home. In other words, by asking that we refuse the benefits of foreign trade,t he protectionists are essentially asking us to give up some of our wealth to favor protected industries.

Now, some protectionists will adopt the question "What good do cheap goods do us if we have no industry? We can't buy anything if we don't have jobs." And that is true, but a bit of a red herring. The question assumes that should our present industries go overseas we will have no jobs remaining.

The truth is that labor is the one input required for absolutely every product. It is at the root of everything we produce, form the labor which removed iron and coal form the earth, to the labor which creates steel from them, to the labor which shapes it into useful products to finally the labor which boxes, ships, and sells those goods. Labor is the one component which is in chronic short supply. If an industry relocates it does not leave labor on the market, it simply frees labor for other uses. I am not saying that there will be no hardship for those who need to retrain for other jobs, there will be, but there would be if a plant closed to move to another town, the same as if it moves overseas, and yet we do not stop all economic progress because of that.  Economic changes always cause short term hardships for some, that is inevitable unless we endorse economic stagnation. Just because the pain is caused by foreign industries does not change that fact.

Of course, some will ask why there is unemployment if that is true. I don't want to spend the pages it would take to fully answer that question, so let me give a very brief synopsis and say I will answer better int he future. Some unemployment will always exist, as some will choose not to work, some will be unable, and some will be between jobs or taking a voluntary respite from work. That number will be with us always, and will usually be rather small. The remainder of our unemployment is a government creation, the result of bad policies. Between pro-union closed shop rules and minimum wage legislation, the government manages to create almost all of the unemployment we see today. The remainder, at the moment a very small number, are the result of another government phenomenon, economic dislocations caused by monetary inflation¹. But that is the topic for another essay as well.

Some protectionists have accepted that foreign trade as a whole is beneficial, yet argue that there are specific instances where special conditions require state intervention. Let us now look at some of those.

Often we will hear that other nations are giving subsidies to their own industries, providing them with an unfair advantage, and thus the state must step in and protect our own industries. This is, once again, a rather peculiar way of looking at things.

Let us start by looking at this entirely from a consumer's point of view. Let us suppose Japan decides to subsidize their own cars $5000 each. In other words, where before you had a US car selling at $15,000 and a comparable Japanese car selling at $15,000, you now can buy the Japanese car at $10,000. As a consumer, the benefit is obvious, you have just obtained the same car for $5000 less, the difference being made up by the Japanese taxpayers. It may not be so beneficial to the nation of Japan, but as far as you are concerned there is no downside, you have just saved five grand.

Even when we abandon the consumer perspective, it is hard to see the downside. Where previously cars were produced by both the US and Japan, we now can buy all of our cars form Japan, with the nation paying $5000 of the cost, while our labor is free to engage in other, more profitable pursuits. It is as if the nation of Japan were providing us with a huge gift.Yes, for a time the labor would require retraining to enter new professions, but I fail to see a downside to the entire situation².

As far as I can tell, the protectionists object to this gift from Japan on two grounds. First, they argue, somewhat vaguely, that we "wouldn't have an auto industry", which doesn't really make much sense. We don't grow bananas domestically either, yet we survive. No particular industry is vital to survival. Then again, there seems to be a mystical attachment to heavy manufacturing second only to the mystical attachment to farming³, with people arguing that the loss of manufacturing jobs somehow portends the end of America. I will deal with this a bit more later, when I speak of theories of autarchy, but let me say right now that the loss of any or all heavy manufacturing does not mean a nation will cease to prosper.

The second argument is that these subsidies are only a temporary measure, intended to drive our industries out of business, after which the rival nation will raise prices and gouge us for their good.  Which would be valid were it not for the capital markets. As soon as the prices rose the profit margins would rise as well, attracting capital to new domestic industries to replace those we lost. There would be a time when such goods would be prohibitively expensive, but it would be brief. For the same reason domestic efforts to "corner the market" on various goods have failed, these plans to use subsidies to establish monopolies will also fail. The market simply does not allow it.

Another area where protectionists express concern is outsourcing. I have seen various statements about this, but most seem to think that big companies are outsourcing to the detriment of small companies and labor. First, I would like to point out that outsourcing has been done by companies of all sizes, so "big business" is hardly the only beneficiary. In fact, as the savings is so substantial, it may have more of a beneficial impact on smaller companies than larger. I would also point out that, while the US has outsourced more jobs recently, it is still a net INSOURCER of jobs, importing far more jobs from foreign nations than it exports.Lastly, I will refer back to my earlier statement that labor is the ultimate commodity and always in demand, so even if we did have net outsourcing, that would just free labor for other needs.

Again, outsourcing may harm certain individuals, but that happens when conditions change domestically as well. Does it matter to an unemployed man if his job went to Detroit or Delhi? The only difference is that one makes for better protectionist rhetoric. Unless we are willing to embrace economic stagnation, jobs will appear, disappear and move and there will be dislocations. Even if the protectionists win and we cannot outsource, jobs will continue to move where labor is cheaper and people will find themselves unemployed. Outsourcing is no different except that it allows demagogues to play on fears of foreigners as well as patriotism. But the truth is, had the job not left, say Chicago, for Delhi, it would have moved to Little Rock. The company would be paying a little more, but the people in Chicago would be just as unemployed.

Another argument offered against outsourcing is that foreign labor has an "unfair advantage" as they are exploited and forced to work for $1/day. I have already dealt with the mistake of calling this exploitation, but the rest of this argument is just as invalid. Workers in more developed nations are paid more because of greater capital investment, in both education and equipment. This capital investment means they will have greater productivity and will earn a higher wage. Any job which can be performed at $1/day will, of necessity, be the most menial and trivial type. As this would need a wage which falls below US wages, it is not so much that they are taking jobs from US workers, as the companies are exporting jobs that US minimum wage laws make impossible to perform legally in the US.

But, even if these companies were exporting jobs that people could legally perform in the US, that does not change my basic argument. As consumers we are benefiting from the lowered costs, while as producers labor is still in demand, and those who are displaced by today's movement of jobs will, after some adjustment, find themselves in demand elsewhere. In short, the net effect is beneficial and a total increase in the wealth of all mankind as well as of those in our nation.

Hopefully these few examples will show the error of the most generic protectionist claim, that we need a "level playing field". This argument is usually the last resort. Once they have been shown how protectionism inevitably leads to a decrease in the standard of living, they will argue that free trade is obviously the ideal, but this nation or that is paying subsidies or imposing unfair taxes and so we need to protect some industries to achieve a "level playing field". But, as I showed with the example of subsidies, it just isn't so. If anything logic and history show that protectionism by other nations serves only to impoverish their citizens,. and, while we would be wealthier should they adopt free trade,t he way to do so is not to engage in protectionism of our own. A level playing field is only desirable if it is based on free trade on both sides. To match their protectionism with our own does not benefit us, it only impoverishes us as much as they were impoverishing themselves.

There is probably one area of trade  I should address before moving on to more general arguments, the recent reports of lead paint on Chinese toys and other health hazards.First, this really does not relate to protectionism.Yes, foreign nations are not subjected to the same manufacturing regulations, but their good should still be subjected to the same inspection as domestically produced goods. That these made their way into the flow of commerce is more an argument about the failure of supposed government protections than anything else. And, as a purely economic action, putting lead into toys is a bad idea, as the resultant publicity will not serve to increase the value of Chinese made goods.

Of course, there are those who argue that it was a Chinese plot to harm the US. Now if they really believe that, they should be arguing not for protectionism, but for simply an end to trade with China, as they are a hostile power. If they are serious, and believe China is trying to harm us through this act, then arguing for protectionism in general just does not follow. Why stop trade with Honduras because of a hostile China? I can see the argument for ending trade with a proven hostile power³, but that is all. It is not protectionism to refuse to deal with an enemy.

Earlier, I spoke of the inexorable logic of economic nationalism, and the way that those who adopted any protectionist policies eventually were driven the logical conclusions of protectionist policies. But at the time, I failed to specify what those conclusions were.

Once we admit that there are industries in our nation which should be protected from foreign competition, we open the gates to other suhc claims. If unfair competition or subsidies justify protection, then should not better natural conditions justify it as well? Or favorable government policies? Or temporary market conditions which harm our industries? Once you allow one claim, you allow them all. And there is not an industry in existence which would not prefer to be protected from competition.

All of which leads us to the eventual end point of protectionism, the endorsement of autarchy⁴⁵. Once we admit that receiving the maximum return for our money is not our primary interest, and argue that protecting national industries against foreign competitors is our goal, ther eis nothing to stop s form moving to a position of endorsing complete autarchy. After all, if keeping a domestic auto industry alive is a valid goal, why not our native steel industry as well? Or our native semiconductor industry? And so one and so on.

It should be obvious that autarchy is not a beneficial principle. In some cases, it may not be possible at all⁶. But when it is posisble, it still results in a net loss to our standard of living. Just as trade between individuals leaves both better off, so does trade between nations. Even when one has a huge advantage in production, it is still beneficial to farm out the tasks at which it is worst in order to concentrate on thsoe areas in which it is best. To cut off foreign trade deprives us of that advantage.

Not only that, but autarchy, and protectionism in general, causes hostility. By cutting off trade we not only harm ourselves, but those nations which would have benefited from trade with us. In addition, the raising of trade barriers short of full autarchy tends to generate hostilities between trading partners, as both seek to overcome the artificial barriers the other erected. Von Mises and others have even argued that the protectionist policies between the world wars were part of the cause of such animosities between the nations, especially as the trade barriers erected by France made more difficult obtaining the foreign currency that reparations demanded.

There is one valid argument raised by those arguing for a limited sort of autarchy, and that is the argument that certain strategic industries must be preserved. To this end they argue for protection for industries such as steel or oil, which are essential to national defense.

Now, it is beyond dispute that no nation would want to have to rely on foreign trade during wartime for its essential materials, but that still doe snot justify a protectionist policy. While we may want to be sure we will have adequate steel for ships, planes, tanks, and so on, erecting trade barriers against Japanese and German steel is not the only answer, and it is likely the worst solution. Far better would be to either erect military foundries at public expense, thus ensuring an unlimited supply, or creating massive stockpiles during peacetime.These solutions have a number of benefits. First, they are a one time cost, and it is clear. The costs of trade barriers are endless and not readily determined. Second, they do not antagonize other nations while achieving the same goals. Lastly, they do not benefit private citizens or create special interests which will persist long after the military necessity is gone⁷. Spending plainly and clearly on defense industries or stockpiles is simply much more open and provides for a much easier accounting of the true costs, while trade barrier serve only to enrich random citizens while obscuring the costs.

There is one other issue which, while not explicitly protectionist, also arises when talking to protectionists, the foreign holding of securities and national debt. I have dealt with the securities issue before, and concluded that the effect is quite small while the cost is huge, and that I could scarcely imagine a less effective tool of economic warfare.As that topic has already been covered, I will look at the holding of debt.

Those who fear China's holding of debt seem to think that somehow T-bills give China the power to come and foreclose. I just do not see the fears⁸. The only power I can see the holding of debt giving to China is the power to buy and sell more T-bills.

Now, I will grant, should China buy a massive sum of T-bills and then sell them, this could, as in the stock scenario, cause a drop in the value of T-bills, but I think, just as in the stock scenario, this price drop will end in a quick recovery to a price close to, but perhaps slightly lower than, the original market level.

But even if it didn't, what is the worst outcome of this drop? If the price of T-bills drops very low, it will make it much harder for the government to issue new debt, but I see that as a benefit, not a harm. In fact, if that were the outcome, I am hoping that China declares economic warfare tomorrow.

The only possible negative outcome I can see is if our government is foolish enough to try to stabilize the market price by having the Fed monetize the debt that is thrown on the market. This would result in an inflation of the money supply equal to the quantity of debt the Chinese dumped on the market. Admittedly, it would be of limited harm, as the Chinese do not hold infinite debt, but the short term effects of such massive inflation could be pretty bad.  However, I would hope that the state is run by people smart enough to avoid doing anything that stupid should the Chinese dump their bonds.

But I am starting to drift outside the scope of my original essay. I intended simply to explain why I thought the idea of protectionism was the wrong approach to economic matters. Hopefully I have done so.

But in case I have not, let me just offer a quick summary. Just as trade between individual enriches everyone, so does trade between nations. Whether or not that trade is fair, or conducted on a level playing field, the simple act of assigning different tasks to different nations provides an advantage to all the parties involved. And that is what protectionism eliminates, some of the advantage we gain from letting others do some of the work. It forces us to do more for ourselves. And, just as you would have less free time if you had to grow your own food, sew your own clothes, fix your own car and build your own house, forcing our nation to do something another nation could makes us all a little bit poorer.

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1. As inflation has been low but constant there are few inflationary pressures causing unemployment. However, in the late 1970's, the dearth of investment that comes with the later stages of strong inflation did cause quite substantial increases in unemployment.

2. If anyone really still believes massive state subsidies lead to economic growth, I would point them back to protectionist articles of the 1980's which predicted Japanese take over of the US. Please note which economy is doing better at the moment. The Japanese model of success through subsidy has been pretty effective debunked by history. Yet I still hear these same fears raised concerning China, or even India.

3. I am not arguing that China is a proven hostile power. I have many problems with China, but do not believe they intentionally used lead based paint. It is most likely simply part of the laziness and incompetence which tend to be characteristic of enterprises in communist nations. Lack of concern for the safety of either consumers or citizens in general is a familiar phenomenon in communist nations, and we do not really need to postulate any conspiracy to imagine that China is simply manufacturing toys using the cheapest and most readily available materials, without thought of the consequences.

4. Strangely, protectionists never seem to go beyond their initial nationalist premises, thought the logic is the same. If it is bad for the US to trade with Mexico, is it not also bad for Pennsylvania to trade with Ohio? And, if that is true, isn't it bad for my town to trade with another? Or me to trade with you? All trade inherently allows someone else to do work I could do myself, so shouldn't I adopt a policy of doing everything myself? In the end, the logic of protectionism leads to the end of all economic interaction.

5. I refuse to adopt the recent academic trend of transliterating chi (and often kappa) as K rather than C. I cannot call Achilles "Akhilleus", and I don't see the advantage to spelling Hector "Hektor". Both are just transliterations, approximations of the Greek original, and I see no reason to toss over the familiar Hector for Hektor. Likewise, the syllable "arch" will always have a "ch" in my mind, so I do not hold with the modern trend to spell autarchy as "autarky". Again, neither is "more Greek", both are approximations, and the "ch" version has a much longer pedigree and greater familiarity, so I don't see why people insist on the change.

6. I doubt it would be possible, no matter what amount we choose to spend, to domestically produce all the bananas and citrus fruit we consume year round within the United States. Even if it were, it would definitely be quite a costly undertaking.

7. Imagine if we had erected trade barriers to ensure we had enough sailing ships during the Civil War. Doubtless those barriers would still exist today, based on the argument that they still represent an essential component of national defense.

8. If anyone knows of a possible harm that the Chinese could inflict using US government debt, or even using stocks, please let me know. I really am puzzled at those who theorize the Chinese have some sort of leverage over us by holding debt. As I wrot ein the stock essay, I can see some short term harm they could inflict, but they are so trivial, and the cost is so great, I can't imagien anyone realistically planning any such action.

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NOTE: I have to renew my objection to the language filters again. This time I am not objecting about the choice of which groups to offend, but to the blocking of ordinary words because they sometimes have an offensive meaning. Not only do the filters block the perfectly ordinary word "qu*er" (meaning peculiar) which is not even offensive to the group it sometimes is used to describe, but they also block "er*ction", as used in my statement "the er*ction of trade barriers". Come on! Even when used to describe genitalia it is not an offensive word, and it has hundreds of non-sexual uses. Blocking that word is just absurd. All because some immature teens might snicker at Townhall? The same ones who wear t-shirts picturing the Taj Mahal with the logo "Man's greatest er*ction"?