Protectionism, Not Free Trade, Is The Job Killer

To believe Senator Bernie Sanders on trade policy must mean you believe in the trade policies of Herbert Hoover that produced all the “wonderful” economic growth of the 1930s. Senator Sanders states his opposition to the Trans-Pacific Partnership thusly:

The TPP follows in the footsteps of other unfettered free trade agreements like NAFTA, CAFTA and the Permanent Normalized Trade Agreement with China (PNTR). These treaties have forced American workers to compete against desperate and low-wage labor around the world. The result has been massive job losses in the United States and the shutting down of tens of thousands of factories. These corporately backed trade agreements have significantly contributed to the race to the bottom, the collapse of the American middle class and increased wealth and income inequality. The TPP is more of the same, but even worse.

Zero-sum economic theory might work to win elections in Vermont, but it does a poor job explaining economic realities.

Free trade benefits consumers who are able to buy goods at more affordable prices, thus increasing American incomes. Competition for customers forces businesses to become more efficient lest they find themselves out of business. More efficient businesses use their resources better, enabling them to grow, necessitating the need to employ more workers.

Protectionism locks in higher prices for protected interests, reducing the efficiency of companies that have to do business with the protected businesses and creating a bigger strain on American budgets. The protected interests, facing reduced competition, have less incentive to innovate. This creates a potential domino effect where other countries retaliate with their own tariffs, shutting out markets for American exporters.

Consider the following:

-In their book Out of Work: Unemployment and Government in Twentieth-Century America, economists Richard Vedder and Lowell Gallaway estimate 20% of the increased unemployment from 1929 to 1932 was a result of the notorious Smoot-Hawley Tariff Act.

-In the 1960s, Dr. Dean Russell estimated prohibitive tariffs destroyed 20 jobs for every 16 saved.

A recent Cato policy analysis cites a Commerce Department study that states 3 candy-making jobs are lost for every sugar-growing job saved thanks to our sugar subsidies, at a cost of $800,000 per saved job.

-While a lot of good was accomplished in the 1980s, protectionist trade policies enacted by the Reagan administration cost jobs in the automotive industry and by steel-using firms.

Per Jay Baron from the Center for Automotive Research, manufacturing is going to Mexico because they have more free trade agreements in place than the US, thus enabling manufacturers to avoid paying import duties they would by doing business in the US. This is why Volkswagen moved an Audi plant to Mexico and not Tennessee.

The purpose of free trade is to increase our well-being through voluntary exchange. It is not a jobs program, yet does a better job than the job-killing track record of protectionism.

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One Response to “Protectionism, Not Free Trade, Is The Job Killer”

  1. The Ramifications Of Trump’s Proposed Trade Wars | The Blog For Truth, Justice, & The Josh Way Says:

    […] bet on these proposed tariffs producing a net gain for jobs. Tariffs are historically job killers. But Trump has made it abundantly clear he won’t let things like the truth get in the way of […]

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