The danger of dabbling in protectionism

WASHINGTON -- A man who worked in a boxer’s corner in a 1962 match against Cassius Clay, as he still was known, explained why the referee stopped the fight in the fourth round: “Things just went sour gradually all at once.” It can be like that when government dabbles in protectionism.

U.S. industrial capacity has never been larger — it is 66 percent above what it was when NAFTA took effect in 1994, and 15 percent above what it was when China joined the World Trade Organization in 2001 — and real U.S. manufacturing is almost back to where it was in 2007, the year the recession began. Manufacturers’ output is 11 percent above what it was in 2001 and 45 percent above 1994. (These statistics are from the Federal Reserve Bank of St. Louis, via George Mason University’s Donald Boudreaux, curator of the Cafe Hayek blog.) U.S. exports are 85 percent higher than in 2001 and 200 percent higher than in 1994, and about 800 percent higher than in 1975, the last year of a U.S. trade surplus. The net inflation-adjusted worth of U.S. nonfinancial corporations is 62 percent more than in 2001 and 200 percent higher than in 1975, before globalization accelerated. During 44 consecutive years of annual trade deficits, the U.S. economy has created a net 70 million new jobs, non-farm employment is 87 percent higher than in 1975, and the unemployment rate (3.6 percent) is the lowest in 50 years. So, from what exactly does the nation need protection?

One particularly strange answer might come by May 18. On Feb. 17, a 90-day clock started ticking when President Trump received a report from his underlings at the Commerce Department, answering his question about whether imports of automobiles and auto parts threaten “national security.” The report’s answer has not been made public, but the question is so facially preposterous that it would only have been asked by someone seeking a “yes” answer. Sen. Chuck Grassley, chairman of the Finance Committee and a member of the tiny (and for that reason especially admirable) Republican wing of the Republican Party, has said he has doubts that the Commerce Department study was done “in a very professional and intellectually honest -- well, I shouldn’t say intellectually honest -- way.”

The president, who can continue to study the report -- you know how studious he is -- until next Saturday, has threatened 25% tariffs on cars and parts. A report from the Trade Partnership, a free-trade advocacy group, estimates that tariffs would increase jobs in the U.S. vehicle and parts sectors by 92,000 -- but that for each of those jobs, three jobs would be lost elsewhere in the economy. And about $6,400 would be added to the price of an inexpensive ($30,000) car.

Sen. Rob Portman, R-Ohio, has a piquant idea: Require the Defense Department, not Commerce, to determine what imports threaten national security. But just try prying this power away from Commerce, which under a protectionist administration thrives as a favor factory for crony capitalists.

Until noon on Jan. 20, 2017, when they underwent conviction transplants, most Republicans were rhetorically and even theoretically opposed to protectionism, which is government telling Americans what they can purchase, in what quantities and at what prices. Most Democrats have no principled objection to protectionism, which accords with their basic agenda of bossy government allocating wealth and opportunity. The Democrats' presidential candidates, however, are uncharacteristically reticent when the subject is protectionism. This is because the Center of the Universe, aka Iowa, exports one-third of its agricultural products. The U.S., which in 2012 sent $30 billion in agricultural products to China, last year (according to the Financial Times' Demetri Sevastopulo and James Politi) sent only $13 billion worth, largely because of China's retaliatory tariffs. But a spokesman for the American Farm Bureau says: "You can't campaign to get rid of tariffs [in Iowa], and then go to Michigan, where they expect [tariffs] to bring back manufacturing."

Protectionists, who are comfortable with cognitive dissonance, say their policy is necessary because economic conditions would be even better with more protection. And they say protection is harmless because existing protectionist measures have not prevented conditions from being optimal. They should heed the Warren Spahn Warning implicit in this story:

In 1951, the Boston Braves’ Spahn, who would become baseball’s winningest left-handed pitcher, stood on the mound 60 feet, 6 inches from a New York Giants rookie who was 0-for-12 in his young career. Willie Mays crushed a Spahn pitch for his first hit and home run. After the game Spahn said, “For the first 60 feet that was a helluva pitch.”

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