VIDEO: Arguments for Protectionism

 

These videos will be discussed in Discussion Question #1

None of these arguments is consistent with the theory laid out in the previous units. Nonetheless, some of these arguments are better than others. For example, the Japanese made the argument that nascent industries need protection for the better part of 20 years, and it resulted in Japan becoming the second largest and most dynamic economy in the world. (There were similar results for other of the Asian “Tiger” economies.).

Another palatable argument favoring protectionism is that of a level playing field.

Why should American workers lose their jobs only because another nation is willing to allow child labor and unsafe and unsanitary working conditions in their factories? Why should American workers lose their jobs when an American corporation finds it profitable to take advantage of another nation’s lax environmental standards? Such differences do cause job losses in America, but they also result in lower prices for American consumers. Questions such as these do not have easy or obvious answers.

One argument that everyone can agree on in principle is the need for protectionism if the security or safety of a nation and its citizens are at risk. During the 1970s and ’80s there was no question about subsidies for aerospace producers like Lockheed Martin, since defense technology was key to the Cold War and thus national security. Today it is imperative that we tighten security—and consequently the time it takes imports to clear customs—at our borders to minimize the threat of future terrorist attacks. But will there come a time when the delays at customs on the grounds of security are increasingly perceived as a protectionist tool which disadvantages the import competition? As for product safety, clearly the US should be within its rights to ban the importation of children’s toys that do meet minimum protocol, but what about when the European Union bans the importation of American agricultural products produced using genetically modified means on similar grounds?
For more information on this contentious trade dispute listen to the following NPR audio clips:

AUDIO CLIP: NPR Audio: U.S. Wants Europe to Lift Ban on Biotech Food (5/14/2003)
http://discover.npr.org/features/feature.jhtml?wfId=1262971

AUDIO CLIP: NPR Audio: The Marketplace Report: Modified Foods Ban (9/10/2003)
http://www.npr.org/features/feature.php?wfId=1427093

More recently, the 2008 financial crisis and ensuing recession has resulted in growing calls for protectionism on the grounds that it will save jobs. For more information on the growing protectionist sentiment due to the 2008 recession listen to the following NPR audio clips:

AUDIO CLIP: NPR Audio: Trade Drop Threatens To Deepen Global Recession (4/10/2009)
http://www.npr.org/templates/story/story.php?storyId=102950723

AUDIO CLIP: NPR Audio: Buy-American Stimulus Provision Sparks Debate (2/3/2009)
http://www.npr.org/templates/story/story.php?storyId=100212839

These videos will be discussed in Discussion Question #2

On the other hand, the argument that protection can stimulate a nation’s economic growth by saving jobs only makes sense if the value of a job saved is worth more than the amount consumers must pay in higher prices in order to save it. And empirically, the evidence suggests that American consumers pay around $150,000 more for the goods they buy for every job that is saved. Additionally, one must also consider not only the jobs that are saved in the protected industry, but also the jobs that might be lost in our export industries if higher input prices or retaliatory measures ensue. For example, in the steel industry case mentioned above, it can be argued that although steel workers jobs were saved, many more jobs in were lost in American industries such as automobiles, which subsequently became less competitive due to the higher price they had to pay for the steel needed to produce their products.

 

VIDEO: The Hidden Cost of Tariffs on Consumers of Tariffs

 

VIDEO: Tariff Escalation, Criticism of Steel Tariffs, Hidden Cost of Protectionism

 

Perhaps it’s best, then, to view the protectionism, and the decision to impose it, as a commodity in the market place which has both its costs and its benefits—there’s a certain “supply” of it which can be granted by the government, and a certain “demand” for it from industry adversely affected. On the supply side, before deciding whether to grant protection to an industry, the government should look at the number of jobs saved, the costs to society (in prices and effects on export industries), the political importance of jobs and costs, and the general climate of opinion at decision time. On the “demand” side, industry considers a number of things before petitioning for protection: the degree of their disadvantage, the market penetration of foreign goods, industry concentration, and their dependence on exports (since retaliatory tariffs will surely follow).

 

VIDEO: The Supply and Demand of Protectionism