The Philosophy of Trade Protectionism, its Costs and its Implications
Policy Analysis No. 10
42 Pages Posted: 22 May 1998
Date Written: July, 1996
This article is divided into four sections. The first section is on the philosophy of protectionism and reviews several of the most commonly given reasons that have been used to justify protectionism over the past few hundred years. The author points out that these arguments generally support the producer's position, often to the detriment of consumers and the general public. Each argument is analyzed empirically and logically. The general conclusion is that the case against protectionism and in favor of free trade is strong from both an economic and liberal democratic perspective.
Part two takes a look at the cost of protectionism, with emphasis on the case in the USA. The auto, steel, textile and agricultural industries are given special attention. Some nonmonetary costs often overlooked or ignored by many commentators are also discussed. These costs include the net deadweight employment loss, social harmony costs, reduced choice and the violation of rights that is inherent whenever consenting adults cannot trade.
Part three examines antidumping policy in the USA from both a theoretical and practical viewpoint. After a review of the economic and legal background of the antidumping laws and a look at how they are administered, the author proceeds to examine the many problems inherent in the present policies, such as the many computational problems, the harmful effects of antidumping policy and the weakness of the predatory pricing argument. The section concludes with a discussion of the philosophy of antidumping policy and examines issues such as the ethics of using the law to batter the competition, the irrationality of antidumping as a policy, a rights approach to antidumping and the relationship between antidumping laws and the legitimate functions of government.
Part four discusses the implications of United States protectionism for international trade in Europe. The author examines the options for trade policy in Europe, with emphasis on emerging market economies, from both the rights and utilitarian perspectives. The author concludes that, while total and immediate free trade is the best policy, policymakers may find it necessary, for practical reasons, to adopt a gradualist approach that involves temporary protection. Of the two options examined -- infant industry protection and unemployment payments -- the unemployment payment approach is the more efficient.
JEL Classification: F13, K2, L5
Suggested Citation: Suggested Citation