Protectionism Is a Boomerang That Whacks Its Proponents
As a Canadian, I have to admit that President Trump is right when he criticizes a new Canadian policy that gives Canada’s producers an incentive to buy domestic supplies of ultra-filtered milk. But the biggest victims of Canadian supply management policies aren’t American dairy farmers, they are Canadian consumers. Ironically, President Trump uttered his criticism as his office was releasing a memo setting the stage for tariffs on steel imports. Who would be the biggest victims of that? American consumers, and American workers in industries that use steel.
The truth is that protectionism is a game of chicken played among countries. And the potential victims are their own people – for example Canadian families when they buy milk, and American families when they try to buy a cheap car or house that includes steel. When politicians pursue trade restrictions – whether it is Canadian politicians with dairy products or President Trump with steel – they are simply cutting off their own nose to spite their citizens’ faces.
President Trump’s attempt to protect the jobs of steel workers is a good example. While tariffs would raise the price of imported steel to protect the jobs of the 150,000 Americans who work in the industry, they would also raise the price of steel for all American industries that use it, threatening the jobs of the 6.5 million Americans who work in them. In fact, any import tariff (or any other kind of trade restriction) will hurt the downstream producers that use the protected goods – and the downstream producers in total employ more people. Protecting Canadian milk and cheese farmers hurts Canadian food processors and restaurants. Protecting U.S. steel producers hurts American automakers, machine equipment producers, construction companies, and tractor producers – and the people they employ.
We’ve seen this movie before. President George W. Bush reacted to competitive problems in the U.S. steel industry in 2002 by imposing tariffs, which he lifted in 2003. A study concluded that higher steel prices cost the United States 200,000 jobs – more than 6 times as many as the steel industry claimed the tariffs saved. Many small machine-tool and metal stamping shops were decimated by steel costs that rose as much as 30 percent.
This is certainly not restricted to Republican administrations. When President Obama imposed special duties on tires imported from China in 2009, the measure increased costs in the auto industry by about $900,000 per job saved. At that rate, President Obama would have been better off sending checks directly to laid-off tire workers.
The boomerang effect of protectionism is clearer than ever in a time of cross-border supply chains. President Trump may regard NAFTA as “one of the worst deals ever negotiated” but it has actually made possible integration of U.S. and Canadian supply chains. Worried about steel from Canada? Then you’re worrying about products that largely come from the United States. About 85 percent of Canadian steel inputs last year came from America. including coal and iron ore from threatened industries in Appalachia and the rust belt. U.S. steel mills use a lot of Canadian steel slab and coil – but much of it comes from American scrap metal. In today’s integrated economy, it’s a fair question to ask how much of a Canadian product is actually made by American workers.
More often than not, closing the door to foreign goods also closes it on goods that were partially made by domestic workers or are needed to support domestic industries. Rather than threaten to cut them off, politicians should throw their countries’ doors open. They don’t take jobs away, they help to create new ones.
