Monday, February 5, 2007

More Free Trade Not Protectionism

Recently there have been some calls for the United States to adopt more protectionist trade policies, and some Democrats have even been elected with this as part of their platforms. Protectionist policy would be one of the worse economic moves that we could make. Protectionist policy benefit a small select section of the economy at the expense of everyone else and the cost that protectionist trade policy place on society is always higher than the value of the jobs that it might save. Protectionist policy lessen economic freedom, reduce consumer choice, lower quality, raise prices, slow the growth of productivity and hurt economic growth.

A protectionist trade policy raise price in a number of ways, the first is that if the protectionist policy takes the form of tariffs. The cost of the tariff places on an imported good, will always raise the cost of imported to goods to a level that is higher than domestically produced goods, because of it didn’t then the tariff would not serve to "protect domestic industry", so consumer are either forced to pay more for the domestic good or to pay even more to buy the imported good that would of been cheaper with out the tariff. Then this has a cascade effect through out the rest of the economy. Since consumer will have to pay more in order to buy goods in the protected industries they will have less money to spend on other goods and services, so they will buy less of those goods and that in turns means those firms will earn less revenue. If they earn less revenue that means that they will have less money to invest in expanding production, paying workers and higher new employees. This cares thru that since the none protect business will earn less, pay less in wages and higher few workers, workers in non protect industries will have less money to spend on goods and service which will lead to even less revenue for non-protected industries.

Import quotas have a similar effect since they limit the amount of an imported good that can be sold in the United States, which means that consumers that are unable to purchase the import will have to spend more money on the goods from the protect industry. Both tariffs and import quotas limit consumer choice by telling them that either can only buy some much of an imported good or that they have to pay a price that is higher than what the market price would be.

Protectionist policies also harm the quality of goods available to the consumer, when competition is limited firms are more likely to produce goods that are of lower quality because they don’t have to worry as much about another firm producing a higher quality good for the same price or price that is close to theirs. Think of how much of improvement there has been in cars in the United States since the American car companies have had to compete with the international car companies or the quality of electronic good sold in the United States since they have had to compete with Japanese.

Protectionist policy also make firms in the United State less competitive, the reason for this is that protectionist policies not only limit the ability of consumer to buy imported goods that maybe cheaper or higher quality, but it also limited the ability of firms to buy lower cost or higher quality. Which means that the goods this produce will be either higher cost, lower quality or both, which means that they will be able to sell fewer goods and that the goods that will be less competitive in the international markets. This once again will hurt economic growth in the United States.

Since it is pretty clear that protectionist trade policies are bad for the economy and the general public, then why do so many people support them? There are a couple reasons, first their are some people that have a bad understanding of economics and truly believe that free trade is bad for the United States, and this includes people like Ross Perot and Patrick Buchanan. Then there are business and interest groups, such as some unions, that have a vested interest in preventing free trade because they benefit from protectionist policies at the expense of everyone else. These groups use dishonest arguments about free trade, such as that is lowers the standards of living in the United States or threatens everyone jobs or hurts the economy, in order to try and turn people to there side.

No comments: