INTERNATIONAL TRADE - Part 15

It has been estimated that the steel tariffs produced $240 million in additional profits to the steel companies and saved 5,000 jobs in the steel industry. At the same time, those American industries that manufacture products made from this artificially more expensive steel lost an estimated $600 million in profits and 26,000 jobs as a result of the steel tariffs. In other words, both American industry and American workers as a whole were worse off, on net balance, as a result of the import restrictions on steel. Similarly, a study of restrictions on the importation of sugar into the United States indicated that, while it saved jobs in the sugar industry, it cost three times as many jobs in the confection industry, because of the high cost of the sugar used in making confections. Some American firms relocated to Canada and Mexico because sugar costs were lower in both these countries.

International trade restrictions provide yet another example of the fallacy of composition, the belief that what is true of a part is true of the whole. There is no question that a particular industry or occupation can be benefitted by international trade restrictions. The fallacy is in believing that this means the economy as a whole is benefitted, whether as regards jobs or profits.

“Infant Industries”

One of the arguments for international trade restrictions that economists have long recognized as valid, in theory at least, is that of protecting “infant industries” temporarily until they can develop the skills and experience necessary to compete with long-established foreign competitors. Once this point is reached, the protection (whether tariffs, import quotas, or whatever) can be taken away and the industry allowed to stand or fall in the competition of the marketplace. In practice, however, a new industry in its infancy seldom has enough political muscle — employees' votes, employers' campaign contributions, local governments dependent on their taxes — to get protection from foreign competition.

On the other hand, an old, inefficient industry that has seen better days may well have some political muscle left and obtain enough protectionist legislation or subsidies from the government to preserve itself from extinction at the expense of the consumers, the taxpayers, or both.

National Defense

Even the greatest advocates of free trade are unlikely to want to depend on imports of military equipment and supplies from nations that could turn out at some future time to be enemy nations.

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