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
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
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
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.
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.