Numerous Reasons Preach against Protectionism

Article excerpt

Thanks in part to the Oct. 19 crash, which temporarily scared Congress into not monkeying with fragile world markets, we escaped 1987 without a big trade bill. But the protectionism clamor won't die, as long as industry after industry keeps taking a beating from imports, and the falling dollar fails to dent the negative trade balance overall.

Well, why not protect? The reasons are numerous.

- Higher consumer costs. In cars, protectionist quotas added $13 billion to 1984 sticker prices alone ($2,500 per imported Japanese car and $1,000 per U.S. auto, after our automakers jacked up their prices).

The British estimate that the Multi-fiber Agreement (MFA) that governs most textile trade tacks an extra 30 percent to 50 percent to low-cost garments; their children's wear prices have doubled since the agreement was signed. A Canadian study demonstrated that the agreement has four times the negative effect on lower income families than it has on those who are better off.

All told, the bill for protectionism in the U.S. is now estimated in excess of $65 billion.

- Unintended side effects. For example, we negotiated the Multi-fiber Agreement to save textile workers' jobs in New England. Instead, from 1968 through 1977, 75,000 jobs were lost in New England, while 50,000 jobs were created in the South.

Or take the 1977 Orderly Market Agreement (to stop the flow of Japanese television imports into the United States): It did curb Japan's share of the TV market, as intended, from 90 percent to 50 percent. But the slack was not picked up in Peoria; instead, newly industrialized countries (NICs) in Asia, such as Taiwan, took up the slack and improved their share of the U.S. market from 15 percent to 50 percent.

Protectionism also causes the nation whose exports are restricted to move to upscale market segments, which threaten the remaining profitable bits of the protectionist nation's markets. The brilliant Honda Acura is a case in point. It is a direct product of auto quotas the United States imposed on Japan.

Honda would surely rather use one of its precious quota slots (especially since it is an underdog in Japan and received relatively few slots) to sell a $20,000 Acura Legend than an $8,000 Civic. Moreover, the excess profit that exporters garner from high prices set by protectionism permits them to invest more and more in innovation and product development for upscale markets.

The spillover effect from one protected industry to other industries is also substantial and capricious. For instance, Oregon's timber must be transported down to Southern California in expensive U.S. bottoms, since we will not let inexpensive foreign shippers engage in interstate water commerce. One result is that the price of housing in Los Angeles goes up, because it uses the Oregon timber, the price of which is inflated by excessively high shipping charges. …