Protection Against Protectionism

The current trade war depresses me. I thought we moved on from zero-sum thinking centuries ago. In times like these, I return to centuries-old refutations of protectionism and tariffs.

Back in 1845, Bastiat destroyed the ideas of tariffs with logic and humor. The driving force behind his arguments is his insistence that economic policy should keep the consumer at the forefront. The consumer is the end-all, be-all of economic policy. Tariffs protect weak businesses and harm consumers at the same time.

G.K. Chesterton once observed that some truths are so obvious, they’re actually difficult to argue for. Take civilization versus barbarism. There are a thousand reasons why civilization is better, but it’s hard to marshal them into a neat argument. In contrast, it’s almost easier to make the case for barbarism: you only need a handful of appealing-sounding points. “We could eat with our hands,” for example.

Blame Nature

The dynamics are similar in our current situation. It is easy to blame China. You just say over and over again, “China is ripping us off,” and it sounds simple and convincing. Bastiat had a rhetorical trick that he returned to again and again. He would put Nature in place of a competitor or importer. This was demonstrated when he blamed the Sun for providing its light too cheaply.

In that essay, The Petition of the Manufacturers of Candles, he argues on behalf of candlemakers to blot out the Sun. The Petition of the Manufacturers of Candles was originally published in the Journal des Économistes, October 1845. It later made its way into Economic Sophisms. As the argument goes, the Sun is providing illumination at much too low a price, and this ruinous competition must be restrained.

“First, if you shut off as much as possible all access to natural light and thereby create a need for artificial light, what industry in France will not ultimately be encouraged?”

Here, Bastiat casts the Sun as his co-conspirator to make his argument. Typically, we hear producers blame some other nation for ruining their business. But how can you blame the Sun? It is a brilliant framing, and the conclusion is obvious. The Sun is great for consumers, and bad for candlemakers.

The Unseen

In another essay, That Which Is Seen and That Which Is Not Seen, Bastiat corrects the popular but flawed idea that when a shopkeeper’s window is broken, the economy benefits by providing work for the glazier.

“In the second, where we suppose the window not to have been broken, he would have spent six francs on shoes, and would have had at the same time the enjoyment of a pair of shoes and of a window.”

In this scenario, a broken window benefits the window producer. Bastiat demonstrates that it is not enough to prove that a broken window benefits the economy.

The genius in all of Bastiat’s essays is his illumination of the counterfactual cascades — the second- and third-order effects of the unseen.

What Bastiat does is to shift between viewpoints. He looks at things through both the producer’s and the consumer’s eyes. He does this to help the reader decide for themselves: what perspective should we give precedence to? Bastiat clearly understands the consumer should be given precedence.

By the way, one of the modern-day applications of the Broken Window Fallacy is that the world — in particular the USA — has benefited greatly from not having to rebuild after a destructive war for a very long time. A building falling down that has to be rebuilt clearly creates a lot of work to be done, but it is not a good thing.

The Deserted Island

I do not pretend to understand the economy — not even the ancient economy of wheat and spice and iron. Much less the modern economy, with more varied atoms and the introduction of bits. But some simple thought experiments can really help illuminate the economic system.

Imagine you are alone on a deserted island. You work 16 hours a day to survive. You spend your days gathering food, building shelter, and trying to survive. One night, at 6 p.m., a perfectly cooked steak dinner washes ashore. You immediately wolf it down. This continues for the next week. On the first morning of the second week, at 7 a.m., a breakfast of eggs and bacon appears on the beach. The third week, the miracles continue. A turkey club sandwich arrives at noon. All your meals are taken care of, and you can focus on ascending into higher levels of comfort and energy.

Framed like this, the consumer is absolutely happy about the abundance being provided to him. It doesn't matter where the meals are coming from. They are an unadulterated good.

Growing Oranges

Now let’s pretend the deserted island from our first example is France. Instead of three meals a day, oranges are washing up on shore. And we know they come from a grower of oranges from Portugal. Also, we have French orange growers, who are upset.

French orange growers are upset by the fact that Portuguese oranges are much cheaper than the oranges they can grow, owing to the sun and soil of Portugal being better for growing oranges in Portugal than in France.

Oranges from Portugal can be sold at $2. French oranges must be sold at $10 to be profitable.

When you break this situation down to pure logic, as Bastiat does, you can confirm that there is nothing possible to be done to change this situation for the better. Any attempt to correct for Portugal’s natural advantages through market intervention would only make everyone poorer.

How did the French protectionists make their case for a market intervention? Let’s use their own words:

“Everyone must wish, for his own sake, as well as for the sake of others, that the production of the country should be protected against foreign competition, whenever the latter can furnish products at a lower price.”

This sounds eerily similar to the arguments of today, but it was made more than 200 years ago. This argument can be dismantled today just as it could be then — with pure expressions of logic.

Imagine that the French government institutes a tariff of $8 on oranges from Portugal.

That is, now a consumer who previously could buy oranges for $2 from Portugal or $10 from France can now buy oranges for $10 from both countries.

If he buys the orange from Portugal, he will pay $10. $2 of it will go to the grower in Portugal (as before), and $8 will go to the French government. France loses nothing in this scenario, except that the French consumer has $8 less and the French government has $8 more.

If the customer buys the orange and it happens to be from France, investment is being funneled toward orange production in France, which is essentially propping up an industry that will never be competitive enough to export its oranges.

In this way, tariffs are demonstrated to be a no-win proposition. They harm consumers and proliferate weak and non-competitive businesses.

Conclusion

So, what tariffs do is shift funds from consumer to government, or prop up globally non-competitive industries. Bastiat writes:

“Consumption is the end and final cause of all the economic phenomena, and it is in consumption consequently that we must expect to find their ultimate and definitive solution.”

This feels wrong. But it is right. The goal is not a stable job. The goal is for abundance — for all your needs to be met by goods and services in such quantity that they feel free, and then for your wants to be ever expanded as you climb the hierarchy of needs.

In this way, free trade, freed from protectionism, will always lead to the best outcomes for all.