Saturday, October 13, 2012

The Great Betrayal 6

When I was reading Edward Gresser's Freedom from Want, which was a defense of free trade, one question that I was hoping Gresser would answer is whether or not free trade has contributed to the stagnation of wages in the U.S., due to cheaper goods pouring into the U.S. from other countries.  Gresser argued that free trade has resulted in more jobs in the U.S. and also that exports have gone up, but (as far as I could see) he did not comment on American wages.

In reading The Great Betrayal, which is Pat Buchanan's defense of protectionism, one question that I am hoping Buchanan will answer is whether or not protectionism leads to higher prices for American consumers, as free traders contend that it does.

Buchanan has touched some on this question in my reading thus far, but I hope that he'll do so in more detail as the book progresses.  First of all, on page 51, Buchanan states: "Here is another fallacy of free-trade theory: what's best for its consumers is best for a country."  That seems to imply that, just because free trade allows American consumers to buy a bunch of cheap foreign goods, which benefits them because it allows them to stretch a buck, that doesn't mean that free trade is beneficial to the U.S., for it makes the U.S. dependent on other countries as well as undermines American manufacturing.

Second, on page 161, Buchanan mentions Abraham Lincoln's argument that "protecting home manufactures, in the long run, produced lower prices" (Buchanan's words on page 161).  I wish that Buchanan explained Lincoln's rationale for this in more detail, but what I got was this: In Lincoln's time, "shipping expenses added 25-50 percent to the price of goods" (page 161).  For Lincoln, those goods could easily be manufactured in the United States of America----with "good quality", "sufficient quantity", and little labor (Lincoln's words).

Third, on page 177, Buchanan is refuting the free trader portrayal of Adam Smith as an absolutist when it comes to free trade.  According to Buchanan, one of Smith's arguments was consistent with later attempts by the Union during the Civil War to increase tariffs in order to "offset taxes on American manufacturers" (page 177).  The more revenue that the government gets through tariffs, the argument may run, the less that it has to get from taxing American businesses.  And, while Buchanan does not say this, perhaps one could argue that this would result in lower prices, since American manufacturers are not passing the cost of taxes onto their consumers.

Am I satisfied?  Not entirely.  I still think that protectionism results in higher prices.  If a tariff increases the price of foreign goods, my hunch is that American manufacturers will charge only a slightly lower price than that of the foreign goods plus the tariff.  The reason is that businesses try to get by with making as much as they can, while still being competitive, so they won't lower prices more than they have to.  But suppose there is no tariff, and cheap foreign goods flow into the U.S.  In that case, there will be more pressure on U.S. manufacturers to offer cheap goods themselves to stay afloat (which may be hard for them).  In short, I think that the prices of American and foreign goods would be higher for American consumers when there is a tariff, than they would be without a tariff.  And, regarding the argument that, in Lincoln's time, there were high shipping costs that made foreign goods more expensive, the fact is that protectionists wanted tariffs to protect U.S. industry from foreign competition----and foreign competitors were competitive precisely because they could offer lower prices for their products than what U.S. industries were offering.

But perhaps Lincoln was hoping that, as more Americans bought American goods, that would increase American productivity, which would result in a greater supply of American goods and thus lower prices.  Maybe.  But I still don't think the prices would be as low as they would be if a massive amount of cheap foreign goods were entering the American marketplace and competing with American goods.

One thing that has been in the back of my mind as I have read Gresser and Buchanan is this: Protectionists want tariffs because that encourages Americans to buy American and thus saves American jobs.  But, on some level, protectionists are also hoping that Americans will still buy foreign goods, since doing so enables tariffs to flow into the U.S. treasury as revenue for the government.  This looks rather contradictory, to be honest with you.  Interestingly, in my latest reading, Buchanan mentioned a Laffer Curve when it comes to tariffs: if tariffs are too high, then people won't buy as many foreign goods, and that means that less revenue from tariffs will flow into the U.S. treasury.

2 comments:

  1. I'm no economist, so take this accordingly. Of course goods will cost more with protective tariffs in place. Foreign goods are usually subsidized by starvation wages for workers who operate in hazardous working conditions. That is a generalization, of course. As a worker, I'm pretty sure I could not survive well on the world average industrial wage. The question is whether I'm willing to pay more to ensure that others are able to live on their wages, too.

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  2. That's a good point----though I found it interesting when I was reading a book by Paul Krugman that Krugman made the point that Europe, too, participates in trade, yet the decline of the middle-class is not as great as what's in the US. I wonder how it can take care of its workers, yet be competitive. Or maybe it chooses to sacrifice efficiency, in areas, for the good of the workers.

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