Tariffs and Trade

Volokh contributor Jacob Levy has a New Republic piece on protectionism, a subject that came up in one of Kash’s posts and the comments therein. Here’s Levy’s key paragraph, but read the whole thing:

Agricultural protectionism–the combination of quotas, tariffs, and subsidies for farm products–may be the purest example of destructive special-interest politics ever created. Rich countries–with a few exceptions, such as Australia–burden their own populations three times over. The policies cost taxpayers directly–the atrocious 2002 U.S. farm bill is slated to cost $180 billion over ten years. (Worse, annual unbudgeted “emergency” farm spending during the late 1990s accounted for a great deal of the spending boom that squandered much of the predicted budget surplus long before the first Bush tax cut took effect.) In return for their largesse, taxpayers get the privilege of paying higher prices as consumers (and, of course, inflated prices for basic foodstuffs hit the poorest proportionately hardest). And, by locking up an excess of labor and capital in an agribusiness sector that couldn’t turn an honest profit on its own, agricultural protectionism inhibits productivity growth, preventing shifts in employment and investment to more productive parts of the economy.

Liberals and Conservatives are mixed in their support of free trade. The extremes of both sides (think Buchanon and Nader) are generally against free trade; the center to near-extreme Right is generally for free trade unless (1) it’s with Cuba, or (2) it involves a swing state (Pennsylvania/Steel and South Carolina/textiles. Actually, SC isn’t a swing state, so why are the Republicans in favor of textile tariffs?). The moderate Left generally supports free trade, or perhaps free trade conditional on some minimum level of working conditions (with the minimum being the key issue of debate).

On balance, it seems that a greater portion of the Left than the Right oppose free trade, with the Left usually arguing that tariffs and subsidies are needed to protect agricultural workers or blue collar workers in declining manufacturing industries. A regime of tariffs and subsidies actually does protect workers in the industries that are being supplanted by foreign suppliers. But, as Levy explains, the costs far exceed the benefits. Who gets the benefits? Domestic farmers, be they family or corporate. Who bears the costs? Domestic consumers (in particular, the poor, since so much of protectionism centers around food and textiles), domestic taxpayers (in higher taxes and lost productivity), and foreign producers (in particular, the Third World Poor, who get lower crop prices as a result of subsidies of U.S. farmers and tariffs on U.S. farm imports).

This last point bears repeating, particularly to the anti-trade Left, a group is generally in favor of increased aid to developing nations: propping up U.S. industries that cannot compete on their own prevents those industries from migrating to countries where they can be profitably undertaken (poorer nations), taking jobs from the would-be workers of those same poor nations. As an added bonus to reducing Third World living standards, we all get to pay more for our goods.