The Alchemist: Protectionism

Posted in Money Matters on November 27, 2003

The following is this week’s installment of The Alchemist, a column by Mensan Al Thomas, author of If It Doesn’t Go Up, Don’t Buy It. Click ‘Read More’ below for this week’s article, “Protectionism.”

The Alchemist: Protectionism

by Al Thomas

First let’s see what protectionism is. According to Mr.
Webster it is the advocacy, system, or theory of protecting domestic
producers by impeding or limiting, as by tariffs or quotas, the
importation of foreign goods and services.


That sounds pretty good. It is something that will protect
the jobs of our workers from goods that can be produced elsewhere and
undercut the prices of our local goods. How? There are a couple of ways.
The merchandise or commodity itself is in very large supply in another
country and is mined or grown there very cheaply. Not much you can do
about that. Or the labor costs of production are vastly less than our
own workers and the product can be manufactured for less.


The average worker in the U.S. makes about $12.00 per hour
while the workers in Mexico get $2.00 and the people in China average 60
cents per hour. How do you compete with them? Answer - you can’t. So
what do you do? If you are a shoe manufacturer in the U.S. you ask the
federal government to levy a tariff (tax) on all imported shoes (or
maybe just the kind you make). This sure helps that particular shoemaker
who might have 300 employees making sneakers. Now the sneaker maker can
keep his prices up and his workers working. That’s good.


But wait a minute. There are millions of feet that need sneakers and
that means millions of consumers are paying more for comparable quality
sneakers. Is it fair to give special consideration to a very small group
that automatically penalizes the mass of consumers?


Examine the definition of tariff again and think it through to the end.
A tariff is a tax on consumers.


You are paying more for certain goods (and there are about 13,000
separate tariffs) than you should just for the benefit of a few
manufacturers who cannot compete in the world market. Every country is
not just a unit unto itself any more. We now have a global economy that
allows specialization of products. If a company cannot compete it should
not be in business and should not penalize the majority of its citizens
for the benefit of a few.


You, the consumer, should not have to pay more for tomatoes, brassieres
and steel just so our politicians can get reelected. That is what is
boils down to. Unions will promise to back certain candidates if they
will vote for tariffs (tax increases) that protect incompetent
manufacturers. The steel tariff is an excellent example. Bush put on a
tariff when he could have given a tax break for new equipment to help
modernize that industry. In the long run our steel production will
disappear because of continuing inefficiency.


If we get into a trade war where one country trumps another with more
and more tariffs it is a guaranteed loser for everyone. Visualize this
as building a house of cards. You end up with a game of 52-pickup. It
could go to the ultimate of deflation and depressions for all the
countries of the world.


Protectionism in all of history has never worked.


Copyright Albert W. Thomas. All rights reserved. Author of “If It Doesn’t Go Up, Don’t Buy It!” www.mutualfundmagic.com. Comments to al@mutualfundmagic.com.