The long and infamous history of protectionism
Looking at the news, one would think that the trade tensions between China and the United States is a purely contemporary issue. However, if one studies history, it becomes evident that protectionism has been present for centuries. The most recent arguments, those of unfair trade, are just one variation of the age-old argument that protectionism saves domestic industries from the threat of foreign competition.
Protectionists only see the jobs lost rather than the jobs created by free trade. Like free trade lower prices, consumers have more money in their pockets. In addition, the producer only thinks about protectionism in isolation and does not realize that with free trade he can have access to cheaper supplies to manufacture his products, thus allowing him to compete with foreign producers. cheaper. Nor does he realize that he will be able to buy other goods at better prices. Even subsidized foreign products are welcome, because the foreign government basically covers the losses of their own producers so that we can get cheaper products, mostly free products. There are many other arguments against protectionism.
Adam Smith wrote in detail against protectionism in his magnum opus The wealth of nations (1776), indicating that efforts to impose tariffs were also active at this time. In Book IV, Chapter 2, Smith laid the foundation for free trade advocates. He noted:
It is the maxim of any prudent head of the family never to try to do at home what it will cost him more to do than to buy. The tailor does not try to make his own shoes, but buys them from the shoemaker. The shoemaker does not try to make his own clothes, but employs a tailor.
Among other things, Smith spoke in detail about the dangers of the national monopoly and its negative impacts on prices and competitiveness. He also spoke of the market distortions created by protectionism, as capital is allocated to the production of goods over which foreign countries have an advantage rather than using that same capital for the production of goods for which the domestic country is. more efficient. Many of the arguments for free trade in contemporary times have been almost identical to those of eighteenth-century Smith.
In the 18th century, a form of protectionism called mercantilism was at the forefront of politics. Mercantilism differs from traditional protectionism in that it is an âactiveâ form of protectionism. He seeks to create a positive trade balance for the country by building up gold reserves (most of the world was on the gold standard at the time) by boosting exports. Therefore, it may seek favorable reciprocal trade agreements which do so but limit imports from other countries which may adversely affect the balance of payments.
Alexander Hamilton was a supporter of commercialism. Although a founding father – and as such associated with the idea of ââfreedom – he was, in fact, a defender of centralized government throughout his career. In his Manufacturers Report (1791), Hamilton laid the groundwork for mercantilist sentiment by advocating comprehensive tariffs, especially for the protection of infant industries. Future president Abraham Lincoln would be another convinced mercantilist.
With its empire growing in the 18th century, tariffs were a means of securing the income essential for future expansion.
Protectionist feelings were also present across the Atlantic. For example, after signing a trade agreement with the United Kingdom in 1786, the French were unhappy with the result because the underdeveloped French industry was forced to sell at deficit prices in Britain, and the feeling for protectionism in France grew.
Despite such free trade agreements, at times in its history the UK has also favored protectionism. With its empire growing in the 18th century, tariffs were a means of securing the income essential for future expansion. The most notable example was the Corn Laws of 1815, enacted to keep British grain prices high. This disastrous trade policy resulted in the Irish Famine of 1845, which was caused by a failed potato harvest, and due to high tariffs on imports, food from other places became expensive, causing a shortage. The scrapping of corn laws soon after marked a shift towards free trade, both in the UK and across Europe. Scottish philosopher David Hume greatly helped to defend the cause of free trade with its price-species-flow mechanism.
Protectionist sentiment would return in later periods, but mainly in an attempt to revive domestic industry after a crisis, as was the case in the 1930s. International trade barriers were erected after the stock market crash of 1929 when the United States United adopted the Smoot-Hawley Tariff Act, which introduced tariffs on more than 20,000 goods to support US industry. The international community has responded with its own tariffs, and many economists believe the Smoot-Hawley Bill triggered the double-digit unemployment figures seen throughout the 1930s.
The graph below indicates these changes in the protectionist sentiments of some of the great superpowers. As can be seen, tariffs fell sharply after the 1840s in Britain, while they skyrocketed in the United States after the Civil War. As mentioned, Lincoln was a strong proponent of protectionism and applied a 44% tariff during the war.
Given the longevity of the idea of ââprotectionism, one might wonder how it survived for so long. The answer is simple: personal interest. It is in the interest of each individual to sell as many goods of his own product at the highest price. As such, foreign competition becomes a threat. Free trade generally lowers the prices of goods and also offers a wider range of choice, which has a negative impact on an uncompetitive domestic producer. It is no wonder that producers often create cartels to have a greater influence on pushing trade barriers. As Adam Smith wrote:
People of the same trade rarely get together, even for fun and entertainment, but the conversation ends with a conspiracy against the public, or some trick to raise prices.
Given this self-interest and its prevalence over the centuries, the best solution to protectionism is a constitutional amendment in favor of zero percent tariffs with no exceptions. The reason exceptions are prohibited is that the argument for protectionism tends to shift, potentially tilting public opinion in its favor. The mercantilist argument centered on exports and gold, while current arguments are based on reciprocal equity. The traditional argument was for the protection of domestic industries or protectionism only for newer and not yet established industries. Whatever the argument, by rejecting all exceptions, we can guarantee the future of free trade in any policy newspeak which advocates protectionism despite its poor historical record.