Re: Protectionism

October 17, 2005

One supposes that we must subsidize steel (or: insert industry) against competition from China (or: insert foreign nation), lest we find ourselves at war with China, under which circumstances she will obviously cease providing us with steel.

Bastiat urges one to consider the logical consequences of action when carried out to the most extreme circumstances. It is in this manner that I wish to briefly examine a protectionist doctrine, and an argument in favor thereof:

Now, the argument has been made that “the more dependent we are on China for steel, they are equally dependent on us as customers of steel.” (for this reason, they have motive to work together with us and to avoid conflict) In light of this counterpunch, it is then presumed that an enemy of ours (and perhaps a trade partner with China) is significantly influential enough to convince China to cease providing us with steel in order that our enemy may gain a tactical and technological advantage over us, if they choose to wage war. I imagine that it is also presumed that this third party will subsidize the expected revenue that we would’ve otherwise provided for China, with regards to the steel industry.

Assuming there is nowhere else from whence we can purchase this commodity, except to produce it at great pains domestically, we would find ourselves in dire straights, no? Unequivocally, I will agree.

But— and this is where one must examine the protectionist doctrine to its root; Bastiat might ask you for the “seen and the unseen” consequences of such a practice. In the preceeding agrument- we are at once disadvantaged by not being able to procure more steel except at great expense to our nation. BUT, we have had the benefit of free trade with China and of imported steel (at significantly less cost), prior to the conflict. You SEE the immediate loss of the surplus provided to us by trade. What you neglect to see, the UNSEEN, is the surplus over time, that trade has afforded us, which we couldn’t have provided ourselves. As a result, we have a stronger infrastructure than that which we couldve provided ourselves. Better technology made possible by better technology. More efficient means of production made possible by stronger and lighter and better quality steel. In short, we have benefitted for all the years prior to whatever hostility may eventually occur. Additionally, let us not forget that now, our opponent(s) are at once immediately disadvantaged by the sudden need to subsidize the industry that we were voluntarily supporting.

But you, protectionist, would forego the benefits now and in the future, in order that you may design some sort of static market that is not affected adversely by supply from abroad. Is it not in our best interests to reap those benefits for as long as possible? If you could, with certainty predict a war in the future, say 5 years from now, would you cease trade with the hostile nation now and put yourself at an immediate disadvantage? Or would you try to reap the benefits for the next 4 years, only suffering the disadvantage when the conflict becomes imminent and unavoidable? You are willing to make, nay, require immediate sacrifices that only serve to negate any reasons our “opponent” may have to avoid a future conflict, you are willing to eliminate the co-dependency and co-operation?

Adopting the doctrine does not make the eventuality of war any less likely, and there are strong arguments that it may make it moreso. Which situation, trade or protetionism, makes a nation best prepared for the eventuality of war or similar supply-shocks?

Under protectionism, we do not and cannot have those immediate luxuries afforded by trade. Protection is prisoner’s dilemma.


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