Smashing Protectionist "Theory" (Again) - Murray N. Rothbard - Mises Daily

Smashing Protectionist "Theory" (Again) - Murray N. Rothbard - Mises Daily: 'The best way to look at tariffs or import quotas or other protectionist restraints is to forget about political boundaries. Political boundaries of nations may be important for other reasons, but they have no economic meaning whatever. Suppose, for example, that each of the United States were a separate nation. Then we would hear a lot of protectionist bellyaching that we are now fortunately spared. Think of the howls by high-priced New York or Rhode Island textile manufacturers who would then be complaining about the "unfair," "cheap labor" competition from various low-type "foreigners" from Tennessee or North Carolina, or vice versa.

Fortunately, the absurdity of worrying about the balance of payments is made evident by focusing on interstate trade. For nobody worries about the balance of payments between New York and New Jersey, or, for that matter, between Manhattan and Brooklyn, because there are no customs officials recording such trade and such balances.

If we think about it, it is clear that a call by New York firms for a tariff against North Carolina is a pure rip-off of New York (as well as North Carolina) consumers, a naked grab for coerced special privilege by less-efficient business firms. If the 50 states were separate nations, the protectionists would then be able to use the trappings of patriotism, and distrust of foreigners, to camouflage and get away with their looting the consumers of their own region.'

'American labor is more costly than Taiwanese because it is far more productive. What makes it productive? To some extent, the comparative qualities of labor, skill, and education. But most of the difference is not due to the personal qualities of the laborers themselves, but to the fact that the American laborer, on the whole, is equipped with more and better capital equipment than his Taiwanese counterparts. The more and better the capital investment per worker, the greater the worker's productivity, and therefore the higher the wage rate.

In short, if the American wage rate is twice that of the Taiwanese, it is because the American laborer is more heavily capitalized, is equipped with more and better tools, and is therefore, on the average, twice as productive. In a sense, I suppose, it is not "fair" for the American worker to make more than the Taiwanese, not because of his personal qualities, but because savers and investors have supplied him with more tools. But a wage rate is determined not just by personal quality but also by relative scarcity, and in the United States the worker is far scarcer compared to capital than he is in Taiwan.'

'the fact that American wage rates are on the average twice that of the Taiwanese, does not make the cost of labor in the United States twice that of Taiwan. Because US labor is twice as productive, this means that the double wage rate in the United States is offset by the double productivity, so that the cost of labor per unit product in the United States and Taiwan tends, on the average, to be the same. One of the major protectionist fallacies is to confuse the price of labor (wage rates) with its cost, which also depends on its relative productivity.'

'The problem faced by less efficient US textile or auto firms is not so much cheap labor in Taiwan or Japan but the fact that other US industries are efficient enough to afford it, because they bid wages that high in the first place.

So, by imposing protective tariffs and quotas to save, bail out, and keep in place less efficient US textile or auto or microchip firms, the protectionists are not only injuring the American consumer. They are also harming efficient US firms and industries, which are prevented from employing resources now locked into incompetent firms, and who could otherwise be able to expand and sell their efficient products at home and abroad.'

'The alleged "deficit" was paid for by foreigners investing the equivalent amount of money in American dollars: in real estate, capital goods, US securities, and bank accounts.

In effect, in the last couple of years, foreigners have been investing enough of their own funds in dollars to keep the dollar high, enabling us to purchase cheap imports. Instead of worrying and complaining about this development, we should rejoice that foreign investors are willing to finance our cheap imports. The only problem is that this bonanza is already coming to an end, with the dollar becoming cheaper and exports more expensive.'

Tariff Lesson for Obama – and Us | Daniel J. Ikenson | Cato Institute: Commentary

Tariff Lesson for Obama – and Us | Daniel J. Ikenson | Cato Institute: Commentary: 'Trade barriers and subsidies, while burdensome to foreign companies, are foremost matters of domestic economic policy. Australia's experience affirms that the most compelling case for dismantling trade restrictions is not that they are "concessions" to exchange for foreign market access, but domestic reforms that benefit the domestic economy, regardless of what other countries do with their own trade barriers.'