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Archive for the ‘Protectionism’ Category

I’m not a fan of the International Monetary Fund. The bureaucracy was created in 1944 to manage and coordinate the system of fixed exchange rates created as part of the 1944 Bretton Woods agreement. But once fixed exchange rates disappeared, the over-funded bureaucracy cleverly adopted a new rationale for its existence and its main role now is to bail out insolvent nations (what that really means, of course, is that it exists to bail out big banks that foolishly lend money to profligate third-world governments).

As part of this new mission, the IMF acts like the Pied Piper of tax hikes. The bureaucrats parachute into nations, refinance and restructure the debt of those countries, and insist on a bunch of tax increases in hopes that more revenue will then be available to service the new debt.

Needless to say, this is not exactly a recipe for growth and prosperity. The private sector in these countries gets hammered with tax increases, the big banks in rich nations get indirect bailouts, and the real problem of bloated government generally is left to fester and metastasize.

This is why I’ve referred to the IMF as the Dr. Kevorkian of the global economy. But the bureaucracy is bad for other reasons. It also has decided that it should grade all nations on their economic policies and it routinely uses that self-assigned authority to recommend big tax hikes all over the world. Including lots of tax increases in the United States.

The IMF even tries to interfere with American elections. Just recently, the chief bureaucrat of the organization launched a not-too-subtle attack on Donald Trump.

Though in this case, which involved trade barriers, the IMF actually is on the right side (the bureaucracy generally has a pro-tax bias, but the one big exception is that it favors lower taxes on global trade).

Anyhow, the IMF’s Managing Director warned that additional protectionist taxes on global trade threaten the global economy. And even though she didn’t specifically mention the Republican nominee, you can see from the various headlines I’m sharing that reporters put 2 + 2 together and realized that Ms Lagarde was criticizing Trump.

And he deserves condemnation. The post-World War II shift to lower trade taxes has been a big victory for economic freedom (indeed, tariff reductions have helped offset the damage caused by increasingly bad fiscal policy over the past several decades).

Nonetheless, there is something quite unseemly about an international bureaucracy taking sides in an American election (who do they think they are, the IRS?). Especially since American taxpayers underwrite the biggest share of the IMF’s activities.

Let’s look specifically at an analysis of the IMF’s actions from the UK-based Guardian.

The managing director of the International Monetary Fund, has launched a thinly veiled attack on the anti-free-trade sentiments expressed by US presidential candidate Donald Trump… Lagarde made it clear she strongly opposed the Republican candidate’s policies, which include higher US tariffs and a barrier along the border with Mexico. …“There is a growing risk of politicians seeking office by promising to ‘get tough’ with foreign trade partners through punitive tariffs or other restrictions on trade…” She added that throughout history there had been arguments about trade. “But history clearly tells us that closing borders or increasing protectionism is not the way to go…”

By the way, while I agree with her comments on trade, her comments about a “barrier along the border with Mexico” reek of hypocrisy.

Christine Lagarde criticises his policies including plans for…a US-Mexico border wall.

Those who have visited the IMF’s lavish headquarters can confirm that there is a very heavily guarded barrier separating the IMF from the hoi polloi and peasantry of Washington.

Call me crazy, but a bureaucracy with lots of security to prevent unauthorized people from entering its building is in no position to lecture a nation for wanting security to prevent unauthorized people from crossing its borders. And I say this as someone who generally favors immigration.

But let’s set that issue aside. There’s actually a very serious sin of omission in the IMF’s analysis that needs to be addressed.

The international bureaucracy (correctly) opposes trade taxes and wants to build on the progress of recent decades by further reducing government-imposed barriers to cross-border economic activity. As noted above, this is the right position and I applaud the IMF’s defense of lower tariffs and expanded trade.

That being said, the level of protectionism has fallen significantly in the post-World War II era. In other words, trade taxes already are reasonably low. Yes, it would be better if they were even lower (ideally zero, like in Hong Kong).

My problem (or, to be more accurate, one of my problems) with the IMF is that the bureaucracy acts as if the world economy is hanging in the balance if there’s some sort of increase in the currently low tax burden on trade.

Yet what about the tax burden on behaviors that actually generate the income people use to purchase goods from other nations? Top tax rates on personal income average more than 40 percent in the developed world, dwarfing the average tariffs of trade.

And the burden on income that is saved and invested is even higher because of double taxation, which is especially destructive since all economic theories – including Marxism and socialism – agree that capital formation is a key to long-run growth and higher living standards (i.e., the ability to buy more goods, including those produced in other nations).

So here’s the question that must be asked: If it is bad to have very modest taxes on the share of people’s income that is used to buy goods produced in other nations, then why isn’t it even worse to have very onerous taxes on the productive behaviors that generate that income?

In other words, if the IMF is correct (and it is) to criticize Trump for threatening to increase the modest tax rates that are imposed on global trade, then why doesn’t the IMF criticize Hillary Clinton for threatening to increase the rather harsh tax rates that are imposed on working, saving, and investment?

Maybe Madame Lagarde’s army of flunkies and servants (one of the many perks she gets, in addition to a munificent tax-free salary) can explain that sauce for a goose is also sauce for a gander.

By the way, I can’t resist addressing one final aspect to this story. The Guardian‘s report notes that Lagarde wants to offset the supposedly harmful impact of trade by further increasing the size and scope of government.

…the solution was for governments to provide direct financial support for those with low skills through higher minimum wages, more generous welfare states, investment in education and a crackdown on tax evasion.

Wow, that’s a lot of economic illiteracy packed into one sentence fragment.

Now you understand why I refer to the IMF as the dumpster fire of global economics.

P.S. While the IMF likes to push bad policy for the United States, the bureaucracy’s proposals for China are akin to a declaration of economic warfare.

P.P.S. The IMF’s flip-flop on infrastructure spending reveals a lot about the bureaucracy’s inner workings.

P.P.P.S. While the IMF often produces sloppy and dishonest research, every so often the professional economists on the staff slip something  useful past the political types. Though my all-time-favorite bit of IMF research was the study that inadvertently showed why a value-added tax is so dangerous.

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John Cowperthwaite deserves a lot of credit for Hong Kong’s prosperity. As a British appointee, he took a hands-off policy and allowed the colony’s economy to thrive. He didn’t even want the government to collect statistics since that would give interventionists data that might be used to argue for interventionism.

I have mixed feelings about that approach. I constantly use statistics because they so often show that free markets and small government produce the best outcomes. I even use data to show that Hong Kong’s economy should be emulated.

On the other hand, there are some statistics that cause a lot of mischief.

I’ve argued, for instance, that we should focus on how national prosperity is generated (gross domestic income) rather than how it is allocated (gross domestic product). If we changed the focus to GDI, the debate would more naturally focus on pro-growth policies to boost wages, small business income, and corporate profits rather than the misguided policies (such as Keynesian economics) that are enabled by a focus on GDP.

That being said, there’s a good argument that the worst government statistic is the “trade deficit.”

This is a very destructive piece of data because people instinctively assume a “deficit” is bad. Yet I have a trade deficit every year with my local grocery store. I’m always buying things from them and they never buy anything from me. Does that mean I’m a “loser”? Of course not. Voluntary exchange, by definition, means that both parties gain from any transaction. And this principle applies when voluntary exchange occurs across national borders.

Moreover, people oftentimes don’t realize that the necessary and automatic flip side of a “trade deficit” is a “capital surplus.” In other words, when foreign companies acquire dollars by selling to American consumers, they frequently decide that investing in the American economy is the best use of that money. And the huge amount of investment from overseas is a sign of comparative prosperity and vitality, not a sign of weakness.

And for any readers who nonetheless think protectionism might be a good idea, I challenge them to answer these eight questions.

I’m confident that both Donald Trump and Bernie Sanders wouldn’t be able to successfully answer any of them. Yet it appears they’ve gained some traction with voters by calling for protectionism.

That’s quite unfortunate. If the pro-trade policy consensus in America breaks down, that would create dangerous opportunities for politicians and bureaucrats to rig the game in favor of special interests while also imposing higher costs of taxpayers and consumers.

Let’s dig into the issue.

In a column for the Wall Street Journal, Mort Kondracke and Matthew Slaughter combine to produce a strong defense of trade.

…the four leading presidential candidates…oppose the U.S. ratifying the Trans-Pacific Partnership. All four demonize trade the same way. …Where is the leader with the courage to tell the truth? To say that trade made this nation great, and that trade barriers will destroy far more jobs than they can ever “save.” …America’s exporters and importers are among the country’s most dynamic companies, paying their workers about 15%-20% more than workers earn elsewhere in the economy. The overall gains are large. Trade and related activities—spurred by accords such as the North American Free Trade Agreement, or Nafta, have boosted annual U.S. income today by about 10 percentage points of GDP relative to what it would have been otherwise. This translates into an aggregate gain of about $1.8 trillion in 2015—thousands of dollars per U.S. household every year. …creative destruction—the movement of people and capital from weaker businesses to stronger ones and new opportunities—is how many of the gains from trade arise. …For generations, American presidents of both parties have spoken about the benefits of trade. “Economic isolation and political leadership are wholly incompatible,” warned John Kennedy. “A creative, competitive America is the answer to a changing world,” said Ronald Reagan. “We should always remember: protectionism is destructionism.”

By the way, I think Kondracke and Slaughter paint with too broad a brush. Both Cruz and Clinton are far less protectionist than Trump and Sanders. Though the authors are correct in noting that they’ve been reluctant (especially in the case of Clinton) to vigorously defend free trade.

The great legal scholar Richard Epstein (also my former debating partner) writes about the dangers of protectionism.

There are of course major difference between the insidious Trump and buffoonish Sanders. …Still, the real selling point of each boils down to one issue: In the indecorous language of the pollster, Pat Caddell, Americans feel “they have been screwed” by free trade. …free trade is in retreat as protectionism becomes the common thread across the both political parties. It is as though the economic unwisdom of the 1930 Smoot-Hawley Tariff Act is back.

Richard makes a very important point that politicians often support protectionism in an attempt to hide the damage they do with other misguided policies.

Free trade offers an uncompromising indictment of, and a powerful corrective for, America’s unsound economic policies. …the reason that local businesses outsource from the United States is the same reason why foreign businesses are reluctant to expand operations here. Our regulatory and labor environment is hostile to economic growth and there are no signs of that abating anytime soon. …the steady decline in freedom and productivity inside the United States has continued apace. Ironically, the strong likelihood that the next American president will expand protectionist practices will only make matters worse: firms, both foreign and domestic, are more reluctant to invest in the United States…free trade gives the federal government and the individual states strong incentives to clean up their act so that they can once again be attractive to foreign investment.

My buddy Ross Kaminsky explains in the American Spectator that free trade is good because it is part of the competitive process that boosts living standards, particularly for the poor.

…in trade, as in any economic endeavor, there are losers in the short run. Capitalism is, after all, fundamentally a system of creative destruction. But if there is any area of agreement among economists of all political stripes…it is that free trade provides large net benefits to the societies that engage in it, even if other nations do not lower trade barriers to the same degree. Furthermore, the benefits of trade accrue in large measure to the lower economic echelons of society in an extension of Schumpeter’s profound observation that “the capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort.”

And Ross echoes Richard Epstein’s point about the real problem being anti-growth policies that make America less competitive.

Trade is complex and like all complex things politicians will dumb it down in a way that benefits them, generally by lying to the public and creating a frothy anger against those “damn furiners” instead of pointing fingers at the true culprits: unions, regulators, and politicians of all stripes.

Ross and Richard are right. If politicians really want more jobs in America, they should be adopting policies to boost U.S. competitiveness.

And we don’t need giant steps. Yes, a flat tax would be great, but even incremental reforms such as a lower corporate tax rate or the right tax treatment of business investment would yield big dividends.

Let’s add a few more voices to the discussion.

In an editorial, the Wall Street Journal debunks Donald Trump’s protectionist tirade against China.

The real-estate developer recently added Japan to his most-wanted list of job killers… “They’re killing us. You know what we sell to Japan? Practically nothing.” Is $116 billion worth of annual goods and services exports to Japan practically nothing? Japan is the fourth largest U.S. export market in goods after Canada, Mexico and China. …The best way to boost American exports is to remove trade barriers with new trade agreements. U.S. farm producers would particularly benefit from the Trans-Pacific Partnership with Japan and 10 other countries. Japanese tariffs on beef would fall to 9% in the 16th year of the deal from 38.5% while the 20% tariff on ground pork would be eliminated in six years. Japan’s 21.3% levy on poultry and eggs would be abolished in six to 13 years.

Writing for the Washington Post, David Ignatius defends trade in general and trade agreements in particular.

…the revolt against free trade that has captured both parties could do the most long-term damage. …there’s strong evidence that trade has benefited the U.S. economy and created whole new industries in which the United States is dominant. That’s the essence of the “creative destruction” that makes a market economy so potent: It relentlessly pushes innovation and change. …The bipartisan protectionism of Trump and Sanders has focused its attacks on the Trans-Pacific Partnership… Robert Z. Lawrence and Tyler Moran estimate that between 2017 and 2026, when TPP would have its major impact, the costs to displaced workers would be 6 percent of the benefits to the economy — or an 18-to-1 benefit-to-cost ratio. …David Autor, David Dorn and Gordon Hanson…noted that the pact would promote trade in knowledge industries where the United States has a big advantage and that “killing the TPP would do little to bring factory work back to America.”

Ignatius also makes a very important observation that protectionists want us to be scared of nations that have much bigger problems than the United States.

Trump, the businessman, seems weirdly out of touch with real economic trends. He speaks of Japan as though it were an economic powerhouse, when it has actually suffered a two-decades-long slump; he describes a surging China, when the numbers show its growth is sagging.

Amen. Japan has huge problems and China still has quite a way to go before it becomes a developed nation.

Let’s close with some good news. Politicians may be engaging in anti-trade demagoguery, and there may be some voters that are motivated by hostility to voluntary exchange, but that doesn’t mean the protectionists have won.

Indeed, pro-trade sentiment has never been higher by some measures. Here’s some amazingly positive polling data from Gallup.

P.S. One final point. The growing burden of government spending and taxation since World War II have been very unfortunate, but the good news is that we have strong evidence that the economic damage of worsening fiscal policy has been offset by the economic gains from trade liberalization. It would be tragic to see that reversed.

P.P.S. Fans of Richard Epstein may enjoy this video of him reminiscing about Barack Obama’s undistinguished tenure at the University of Chicago Law School, as well as this video of him dismantling George Soros in a debate that took place at Cato.

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This century has not been good news for economic liberty in the United States.

According to Economic Freedom of the World, America has dropped from being the 3rd-freest economy of the world in 2001 to the 12th-freest economy in the most recent rankings.

Perhaps more important, our aggregate score has fallen from 8.20 to 7.81 over the same period.

So why has the U.S. score dropped? Was it Bush’s spending binge? Obama’s stimulus boondoggle? All the spending and taxes in Obamacare? The fiscal cliff tax hike?

I certainly think all those policies were mistaken, but if you dig into the annual data, America’s score on “size of government” only fell from 7.1 to 7.0 between 2001 and 2012.

Which means economic freedom in the United States mostly declined for reasons other than fiscal policy. In other words, our score dropped because of what happened to our scores for trade policy, monetary policy, regulatory policy, and property rights and rule of law.

That triggered my curiosity. If America is #12 in the overall rankings, how would we rank if fiscal policy was removed from the equation?

Here are the results, showing the top 25 jurisdictions based on the four non-fiscal policy factors. As you can see, the United States drops from #12 to #24, which means we trail 14 European nations in these important measures of economic freedom.

If you look in the second column, you’ll notice how many of those European nations have double-digit increases when you look at their non-fiscal rankings compared to their overall rankings.

This is for two reasons.

First, their fiscal scores are terrible because of high tax rates and a stifling burden of government spending.

Second, these same nations are hyper-free market on issues such as trade, regulation, money, rule of law and property rights.

In other words, the data back up points I’ve made about policy in nations such as Denmark and Sweden.

In an ideal world, countries should have free markets and small government. In Northern Europe, they manage to get the first part right. Which is important since non-fiscal factors account for 80 percent of a nation’s overall grade.

Now let’s return to the issue of America’s decline.

Here are the non-fiscal rankings from 2001. As you can see, the United States was #5 at the time, scoring higher than even Singapore and Hong Kong. And the U.S. was behind only three European nations back in 2001.

For what it’s worth, America’s score has fallen primarily because of a significant drop in the trade category (from 8.7 to 7.7) and a huge drop for rule of law and property rights (from 8.7 to 7.0).

In other words, it’s not good for prosperity when a nation begins to have problems such as protectionism and politicized courts.

P.S. The erosion of America’s score for non-fiscal factors is particularly disappointing since improvements in those factors have played a big role in protecting the world from the negative economic consequences of more spending and taxes.

P.P.S. I think this is an example of correlation rather than causation, but the above rankings for non-fiscal economic liberty seem somewhat similar to the rankings I shared last week looking at overall societal freedom.

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Free trade is a good moral concept for the simple reason that politicians and bureaucrats should not be allowed to interfere with voluntary transactions between consenting adults.

It’s also a good economic concept for the simple reason that protectionists can’t provide good answers to simple questions.

And free trade is a good geopolitical concept because it is far better than foreign aid as a mechanism for generating prosperity in less-developed nations.

Writing for the Economic Times of India, Bjorn Lomborg of the Copenhagen Consensus Center writes about the benefits of open markets among nations.

With one simple policy—more free trade—we could make the world $500 trillion better off and lift 160 million people out of extreme poverty. …reducing trade barriers not only makes the world richer, it is a great enabler for reducing poverty, curtailing hunger, improving health and restoring the environment. …Freer trade essentially means that each country can focus on doing what it does best, making all countries better off.

The good news is that global trade has been substantially liberalized. Protectionist barriers are much lower than they were a few decades ago.

Indeed, shifts to freer trade have helped compensate for growing fiscal burdens in the post-WWII era.

But we also have bad news. There are still sectors where trade taxes and other protectionist policies inhibit voluntary exchange, most notably for agriculture and textiles.

Lomborg cites data about the huge gains that would be possible if these sectors were liberalized.

The direct economic benefits would be a 1.1 per cent increase in global GDP. This sounds modest. But because it would impact the entire world economy, by 2030 we would be about $1.5 trillion richer every year. Open economies also grow faster. In the last 50 years, countries as diverse as South Korea, Chile and India have seen their rate of growth shoot up by 1.5 per cent per annum on average, shortly after liberalisation. If Doha can be completed, it is estimated that the global economy will grow by an extra 0.6 per cent for the next few decades. By 2030, such dynamic growth would make the world economy $11.5 trillion larger each year, leaving us 10 per cent more resources to fix all other problems. …By the end of the century, free trade could leave our grandkids 20 per cent better off, or with $100 trillion more every year than they would otherwise have had.

Lomborg is making the very important point that even modest increases in growth, sustained over long periods of time, can lead to huge increases in prosperity.

He correctly applies this analysis to the trade sector, but it’s a lesson that has universal applicability. It’s why we need better tax policy, a lower burden of government spending, less regulation and red tape, and better rule of law to limit government corruption.

But today’s focus is trade, so let’s look at a great video from Marginal Revolution University. Here’s Professor Tyler Cowen of George Mason University talking about the benefits of trade.

By the way, I didn’t notice it at first, but Tyler’s video doesn’t focus on international trade. He simply explains the benefit of trade among people.

But this also helps to explain why free trade across borders is good for growth. If it’s good for two people inside Virginia to engage in voluntary exchange, and if it’s good for a person in Virginia and a person in Ohio to engage in voluntary exchange, then it’s also true that it’s good for a person in Virginia and a person in Ireland to engage in voluntary exchange.

Another subtle yet important secondary point from the video is that central planning is folly because no single bureaucrat, or group of bureaucrats, will ever have the necessary knowledge (much less incentive) to properly allocate resources. To elaborate, you just listened to Prof. Cowen explain that one of the big benefits of trade is that people can specialize in things where they have a comparative advantage. And when people specialize, they develop greater knowledge in particular fields, which further increases their productivity. Yet it’s impossible for that diffuse knowledge to be centralized, much less used properly.

Which is why centrally planned economies such as North Korea, Cuba, and Venezuela are such disasters.

And this also explains why nations that normally rely on markets get such bad results when politicians take control of specific sectors of the economy. Just consider the failures of Obamacare and the U.K.’s government-run healthcare system.

But let’s get back to the issue of trade.

Politicians sometimes make arguments about “economic patriotism.” If that simply meant, for instance, that they wanted a lower corporate tax rate to make American companies and workers more competitive, that would be fine.

But as we’ve seen with Obama, language about patriotism oftentimes is a ruse to push for protectionism and other bad policies.

And one of the reasons why the protectionism-patriotism argument doesn’t make sense is that it presumes a contest among nations. Yet as Walter Williams wisely explained, trade ultimately is between private individuals.

P.S. The MRU videos are great tutorials about economics. In prior posts, I’ve shared videos explaining how taxes destroy economic value, highlighting the valuable role of market-based prices, and revealing the destructive impact of government subsidies. They’re all worth a few minutes of your time.

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I despise protectionism. Mostly because it is bad economic policy, but also because politicians often use protectionism as a way of diverting attention from their own failures.

So when I appeared on Neil Cavuto’s show to comment on President Obama’s criticism of “outsourcing,” I was a tad bit critical.

I think my opening comments were effective. I wanted to help viewers understand that cross-border investment is a big net plus for the American economy. Indeed, this is why I’m so critical of laws such as FATCA that discourage foreigners from making job-creating investments in the United States.

And I hope people understood the moral point I made about how it’s not our business what private citizens do with their own money, but it is our business when politicians squander taxpayer money.

Though perhaps I should have asked the folks at Fox to put this cartoon on the screen.

I also got to take a jab at the failed Keynesian stimulus. And I explained that big government facilitates corruption and that excessive government spending undermines growth, so I’m generally happy with my remarks.

But not completely happy. I should have said that the average corporate tax rate around the world is 15 to 17 percentage points below the American level, not 15 to 17 percent, but hopefully people understood the point I was trying to make.

P.S. Romney’s been engaging in some China bashing, so he also deserves some criticism.

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I’ve written several times about the foolish War on Drugs, which has been about as misguided and ineffective as the government’s War on Poverty.

So when I saw a news report about a couple of Swedes getting busted for smuggling 200-plus kilos of contraband into Norway, and then another story about a Russian getting caught trying to sneak 90 kilos of an illicit substance into the country, I wondered whether these were reports about cocaine or marijuana. Or perhaps heroin or crystal meth.

Hardly. Norway’s law enforcement community was protecting people from the horrible scourge of illegal butter.

Sounds absurd, but there’s been an increase in the demand for butter and high import taxes have created a huge incentive for black market butter sales. Here’s a video on this latest example of government stupidity.

I guess the moral of the story is that if you outlaw butter, only outlaws will have butter. Or perhaps butter is the gateway drug leading to whole milk consumption, red meat, salt, and other dietary sins. Surely Mayor Bloomberg will want to investigate.

By the way, the United States is not immune from foolish policies that line the pockets of criminals. Here’s a video from the Mackinac Center revealing how punitive tobacco taxes facilitate organized crime.

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When asked to pick my most frustrating issue, I could list things from my policy field such as class warfare or income redistribution.

But based on all the speeches and media interviews I do, which  periodically venture into other areas, I suspect protectionism vs. free trade is the biggest challenge.

So I want to ask the protectionists (though anybody is free to provide feedback) how they would answer these simple questions.

1. Do you think politicians and bureaucrats should be able to tell you what you’re allowed to buy?

As Walter Williams has explained, this is a simple matter of freedom and liberty. If you want to give the political elite the authority to tell you whether you can buy foreign-produced goods, you have opened the door to endless mischief.

2. If trade barriers between nations are good, then shouldn’t we have trade barriers between states? Or cities?

This is a very straightforward challenge. If protectionism is good, then it shouldn’t be limited to national borders.

3. Why is it bad that foreigners use the dollars they obtain to invest in the American economy instead of buying products?

Little green pieces of paper have little value to foreign companies. They only accept those dollars in exchange for products because they intend to use them, either to buy American products or to invest in the U.S. economy. Indeed, a “capital surplus” is the flip side of a “trade deficit.” This generally is a positive sign for the American economy (though I freely admit this argument is weakened if foreigners use dollars to “invest” in federal government debt).

4. Do you think protectionism would be necessary if America did pro-growth reforms such as a lower corporate tax rate, less wasteful spending, and reduced red tape?

There are thousands of hard-working Americans that have lost jobs because of foreign competition. At some level, this is natural in a dynamic economy, much as candle makers lost jobs when the light bulb was invented. But oftentimes American producers can’t meet the challenge of foreign competition because of bad policy from Washington. When I think of ordinary Americans that have lost jobs, I direct my anger at the politicians in DC, not a foreign company or foreign workers.

5. Do you think protectionism would help, in the long run, if we don’t implement pro-growth reforms?

If we travel down the path of protectionism, politicians will use that as an excuse not to implement pro-growth reforms. This condemns America to a toxic combination of two bad policies – big government and trade distortions. This will destroy far more jobs and opportunity that foreign competition.

6. Do you recognize that, by creating the ability to offer special favors to selected industries, protectionism creates enormous opportunities for corruption?

Most protectionism in America is the result of organized interest groups and powerful unions trying to prop up inefficient practices. And they only achieve their goals by getting in bed with the Washington crowd in a process that is good for the corrupt nexus of interest groups-lobbyists-politicians-bureaucrats.

7. If you don’t like taxes, why would you like taxes on imports?

A tariff is nothing but a tax that politicians impose on selected products. This presumably makes protectionism inconsistent with the principles of low taxes and limited government.

8. Can you point to nations that have prospered with protectionism, particularly when compared to similar nations with free trade?

Some people will be tempted to say that the United States was a successful economy in the 1800s when tariffs financed a significant share of the federal government. That’s largely true, but the nation’s rising prosperity surely was due to the fact that we had no income tax, a tiny federal government, and very little regulation. And I can’t resist pointing out that the 1930 Smoot-Hawley tariff didn’t exactly lead to good results.

We also had internal free trade, as explained in this excellent short video on the benefits of free trade, narrated by Don Boudreaux of George Mason University and produced by the Institute for Humane Studies.

My closing argument is that people who generally favor economic freedom should ask themselves whether it’s legitimate or logical to make an exception in the case of foreign trade.

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