Friday, August 18, 2006

The Folly of Protectionism

Protectionism is the economic policy of restraining trade between nations, through methods such as high tariffs on imported goods, restrictive quotas, a variety of restrictive government regulations designed to discourage imports, and anti-dumping laws in an attempt to protect domestic industries in a particular nation from foreign take-over or competition. This contrasts sharply with free trade, where no artificial barriers to entry are instituted.

There are many tools of protectionism. Subsidies function to protect particular existing buisinesses from domestic and foreign competition when they otherwise would be taking a loss or going out of buisiness on the free market. Tariffs function to increase the price of a foreign competitor's goods. State intervention is used to directly bolster an economic entity, such as a particular industry or corporation. What all of this amounts to is special priviledge to special interests and big buisiness at the expense of the multitude, the tax-payer.

One common protectionist charge is that it is "unfair" for an American firm to compete with, say, a Taiwanese firm which needs to pay only one-half the wages of the American competitor. The U.S. government is called upon to step in and "equalize" the wage rates by imposing an equivalent tariff upon the Taiwanese. But does this mean that consumers can never patronize low-cost firms because it is "unfair" for them to have lower costs than inefficient competitors? This is the same argument that would be used by a New York firm trying to cripple its North Carolina competitor.

Why is competition necessary? Because the more different buisinesses there are to try to please the consumer better then the next, with a better quality for a lower price then the next, the lower the cost is going to get. So, in short - competition reduces prices. The unyielding demand of the public forces buisinesses to compete and adapt or go out of buisiness.

Protectionism functions to cripple this process by shielding select buisinesses from competition so that they can reap benefits from the tax-payer and stay in buisiness when they should have adapted or gone out of buisiness on the free market. At the same time, it cripples honestly competing buisinesses, especially small buisinesses. Protectionism cripples the consumer by protecting special interests, thereby raising prices and destroying the capital of competitors. In short, inefficient producers are trying to deprive all of us of products we desire so that we will have to turn to inefficient firms. A "veto" on the consumer's demands. American consumers are to be plundered.

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