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
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
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. …