JOHN CHUCKMAN COMMENT: THE EXTREME DANGER OF AMERICAN PROTECTIONISM TODAY   Leave a comment

JOHN CHUCKMAN
 
POSTED RESPONSE TO A COLUMN BY CLIVE CROOK IN THE FINANCIAL TIMES

This is just fundamental economics.

The problem in these matters is the divergence between individual and community interests, a divergence many people seem almost incapable of appreciating.

The illusion here is that you can protect your own prosperity while leaving others to look after themselves, but trade does not work that way.

And trade, even that which is not offshore but with our own neighbors, is the entire basis of a modern economy. The primitive villages of third-world countries – many of which do not even use money – are examples of societies without trade.

Let’s take a real example.

Wal-Mart could not exist today were it not for China. Once Wal-Mart blubbered about America and “made in America,” but it is in no position to do that.

Or in the few instances that it still does do that, it is creating a patriotic smokescreen, a form of emotionally-charged and dishonest marketing, for the overwhelming offshore nature of its orders. It is China’s biggest retail customer.

It is easy for someone thinking like “J” (above) to point to the infinite number of products in a Wal-Mart store made in China and declare we could or should produce them ourselves to create jobs.

But they could not be produced at the same cost, and millions of Americans now enjoying an immense economic advantage of less costly goods would lose it.

Americans would actually end up poorer on average were people like “J” able to have their way.

The “on average” is very important with trade, because from the point of view of a “J” working at a new, higher cost plant, things appear better.

But for the entire American society, things will be unambiguously worse. Hundreds of millions will lose their cheaper goods so that “J” can work at a new plant.

And they will buy fewer goods owing to their higher cost.

But there will still be more effects. China too will become unambiguously poorer. And China and others would respond from the same impulses motivating “J,” generating a downward spiral in total consumption and increasing costs.

This example, in one way or another, describes each and every example of “buy American” you can come up with.

American protectionism – through a stupid set of import tax laws called Smoot-Hawley – helped deepen the Great Depression in just this way. There are many forms protectionism can take, but they all boil down to the same results.

Let’s hope America – whose irresponsible policies at home and abroad are directly the cause of our current mess – at least shoulders some responsibility and avoids further irresponsible policies.

But I’m not overly hopeful: there are a lot of “J”s out there.

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