The Costs of Protectionism

The Washington Times (Washington, DC), June 28, 1999 | Go to article overview

The Costs of Protectionism


A recent vote in the U.S. Senate regarding the proposed establishment of import quotas for steel offered a textbook case in the political economy of protectionism.

The principles that underlie free-trade policy and stand in opposition to trade protectionism are straightforward. Protectionism increases prices for consumers and reduces their choices. It makes the products of manufacturers who use the protected input more expensive, less profitable and less competitive. Protectionism is inflationary. It invites retaliation, almost always affecting industries (and workers) that have not benefited from the tariffs, quotas or other trade-killing measures to which the inevitable retaliation responds. Retaliation begets more retaliation. Protectionism's benefits are financed by increasing costs to a large, unorganized group of consumers. But those benefits normally accrue to relatively much smaller, more politically powerful interest groups. Inevitably, there are dead-weight losses resulting from protectionism that reduce an economy's overall efficiency, dynamism, productivity potential and long-term growth prospects. In virtually all cases of protectionism, the costs to save one domestic job - and all protectionist legislation advertises itself as "job-saving" - dwarf the value of the jobs saved.

Despite these principles, protectionism is often embraced by politicians who are more concerned with dividing the size of the current economic pie than pursuing long-term policies that will increase the size of future economic pies. Regrettably, protectionism, in recent decades generally the province of Big Labor-dominated Democrats, is becoming increasingly bipartisan. Pat Buchanan and Bob Smith, for example, are seeking the Republican presidential nomination in part by pursuing protectionist agendas.

Nowhere was this disturbing bipartisan trend more evident than in the steel-import-quota bill that stormed through the House in March by a veto-proof margin. Ninety-one Republicans joined 197 Democrats to vote for a bill that Brookings Institution fellow Robert Crandall aptly called "one of the most blatantly protectionist pieces of legislation since the 1930s." Two weeks ago, according to White House calculations, it appeared that the Senate might well achieve a veto-proof, two-thirds margin.

President Clinton, who, to his credit, has actively bucked his party's congressional caucus' fervid protectionism, threatened to veto the steel-quota bill and lobbied hard to defeat it. To his discredit, Vice President Al Gore offered tepid, last-minute support for the White House's position, but took a powder when it came to lobbying Senate Democrats. With the cooperation of the Senate Republican leadership, the White House prevailed in defeating the measure, but not before 15 Republicans joined 27 Democrats in support of cloture to cut off debate and bring the quota bill to the floor. …

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