Free Trade vs. Protectionism

According to Prof. Don Boudreaux, free trade is nothing more than a system of trade that treats foreign goods and services no differently than domestic goods and services. Protectionism, on the other hand, is a system of trade that discriminates against foreign goods and services in an attempt to favor domestic goods and services. In theory, free trade outperforms protectionism by bringing lower cost goods and services to consumers. In practice, the benefits of free trade can be seen in countries like America and Hong Kong. Both countries have a relatively high degree of free trade, and, as a consequence, have experienced an explosion of wealth.

[fringeelements]

The US had the highest tariffs in the world from 1820 to 1945.

[mujaku]

"Free trade results in giving our money, our manufactures, and our markets to other nations." — President McKinley [R]

[groam]

Hong Kongs success was in spite of no tariffs, not because they had none. It was a small protectorate, and when the Chinese Civil War broke out, a lot of capitalists and educated, along with their machines and resources fled to Hong Kong. It was rapidly industrialized and they had an enormous stockpile of capital goods. Other countries didn't have huge capital inflight, they had heavy interventionist policies to build their infrastructure and industrial base.

That's just history.

[mujaku]

John Maynard Keynes said "that if you throw men out of work in one direction you re-employ them in another. As soon as that link in the chain is broken the whole of the free trade argument breaks down" (JMK, Vol. 20, 115–17). Keynes was right. Free trade, beginning when Ronald Reagan signed the FTA with Israel, broke the chain. We throw men and women out of work in one direction then make sure there are fewer jobs with less pay in the other direction.

[LucisFerre]

@elevenplaneteleven, Here's another thing to consider. When you place a tariff on imported goods, say cars, you raise their price. This creates a greater demand for domestic new cars, the demand curve moves up and price seeks a new equilibrium, i.e. supply less than demand...prices go up on domestic cars too.

[luizcadu]

I always think there's something strange about Hong Kong mentioned as a successful free capitalist experience. First, because it's not a country, it's a city-state. If you take Shanghai isolatedly, it already has first world living standards and income. Second, because it was heavily helped by the US, who wanted to prevent the Soviet dominantion in Asia. US investments and imports of products from Hong Kong were crucial for its development.
(...)

[mujaku]

"If we trade away American jobs and farmers' incomes for some vague concept of a 'new international order, ' the American people will demand from their elected representatives a new order of their own, which puts their jobs, their security, and their incomes above the priorities of those who dealt them a bad deal." — Sen. Russell Long

[lordnate]

Free trade would be fine, if all other countries complied to US standards of labor. They don't and that's the main issue with free trade.

[tannersanta]

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[StateExempt]

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[FletchforFreedom]

Firstly, Ha Joon Chang is a neo-Marist, not merely as a "development economist" but he expressly cites Marx and Marxian theory in his treatise on protectionism. And saying that he is out of the mainstream is a massive understatement. The actual evidence is overwhelming that free trade is mutually beneficial regardless of the level of economic development, actually raising countries up (and their living standards) to a higher level. Thus it is disastrous for such economies to be protectionist.

[unclesam]

This whole video is incorrect. 1st bill George Washington signed was a protectionist bill. Abraham Lincoln was elected as a protectionist to support the Morril tariff act. 140+ counties use VAT taxes that in terms of trade serve as an across the board tariff on all imports with proceeds rebated to help exports of mfg goods. The USA is the only developed country in the world without a VAT tax structure. This guy has no idea what he is talking about.

[derekteed]

America's first major Act passed under the new constitution was hugely Protectionist, the Tariff of 1789, and it helped America develop. America has always been a Protectionist nation in one way or another. America just likes Free Trade when it benefits them—in the industries they already have an advantage against.

[MegaAstrodude]

It also gives Congress the power to levy tariffs. All of the early Federalists favored tariffs on foreign goods, which makes this Boudreaux guy delusional.

[MrJarth]

2.Not only that but it isn't energy efficient, it has to be shipped in from another country (go though customs etc) it is easier to just have local industry. Lastly why sell out local jobs to people overseas? A government must do what is best for its people, and ruining local markets seems stupid especially since the only reason it is cost efficient is because of foreign government subsides. I can see why America does want free trade because it is only advantageous for themselves.

[johnc]

I didn't even think about the U.S. in that way. That's interesting. Anyway, I completely support free trade over protectionism. One of the greatest arguments protectionists have against free trade is that it encourages outsourcing of jobs to other nations where wages are lower, thus harming domestic workers. This is true, however, this is not the entire picture. Free trade encourages businesses to produce their goods/services wherever it is most economical to do so. In protectionism, producing goods domestically is artificially made the more economical place. However, this artificially increases prices to domestic consumers. They don't get as low of prices as they could be getting, due to protectionism. So, it harms domestic consumers. Also, when businesses choose to produce their goods/services abroad (say, in poorer countries), they are providing those foreign people the ability to earn at least some income. These wages start out low, as those workers provide little value to the employer. However, over time, wages are increased as their is increased competition for workers between foreign and domestic businesses. We are currently seeing this in China, where wages are now increasing and American businesses are beginning to look elsewhere to produce their goods/services. The only downside is that this does harm American workers who often have their jobs shipped overseas. The answer to this is not, however, to do the less economical thing of protectionism, but rather for American workers to seek employment where there is demand. For example, there are plenty of jobs in health care, trade skills, and information technology in the U.S. and many of these jobs are going unfilled due to a lack of qualified applicants. We have a skills gap an several areas of the U.S. economy because workers simply aren't pursuing these job opportunities.

[devindelgrego]

So to really hurt a countries economy you might sell your goods to them for cheap but anything that goes out would be taxed?

[fredericbastiat]

"Read Founding Fathers." I read part of Hamilton's book on manufacturing. It was a mercantalist tract. It's full of economic fallacies.

Some industries could produce goods at lower cost than American counterparts, but they still had to ship them here at great cost. Americans could produce some goods cheaper than their euro counterparts, but they still had the cost of shipping too.

There are comparative advantages to free trade. We have corporatist managed trade at present, not free trade.

[wiimooden]

Import tariffs restrict the import of both finished goods and factors of production.

If the costs of the raw materials are increased, the costs of the final good is increased. How exactly are 'manufactured' goods exempt from this?

[Salvysahagun]

between 1861 and 1900 America was the Largest Protectionist nation of all time.
American System of Economics.