In my previous column I identified some illiberal policies that, although I wish these had never been put into place, I’d not now eliminate immediately with the push of a button. I advocate instead that these policies be wound down only gradually. But I also described some other illiberal policies that I would indeed, if I could, abolish all at once with the push of a button.
Here I describe one other illiberal policy that, had I the power to do so, I would abolish immediately. That policy is economic protectionism. I would unhesitatingly and immediately push a button to eliminate all tariffs and other import barriers, as well as all subsidies, put into place by the US government for purposes other than the furtherance of national security.
My discussion here is confined to trade policies of the US government. Being an American living in America, the US is my home country, and so the US government, compared to other governments, has a disproportionately large impact on my wellbeing. Without doubt, if I had the power to do so, I’d press a button to eliminate all trade barriers and subsidies worldwide; pushing such a button would be glorious. Yet my advocacy of free trade for America depends in no way upon the trade policies of other governments. So I confine my discussion to the policy pursued by my home-country government.
Does my willingness to eliminate immediately, and in one fell swoop, all trade restrictions and tariffs imposed by the US government mark me as a radical?
In some sense, of course it does. A policy of complete, unilateral free trade – excepting only those tariffs and subsidies legitimately imposed for national-defense purposes – is on one end of a spectrum, whose opposite end features a policy of complete autarky. I can find no sound economic or ethical justification for being anywhere on this spectrum other than at its complete, unilateral-free-trade end.
My willingness to eliminate immediately all economically motivated protectionist measures also marks me as a radical by separating me from Adam Smith. Like me, Smith endorsed a policy of unilateral free trade; unlike me, however, Smith would not eliminate all existing tariffs with the push of a button. At least in some cases it seems, Smith advocated that tariffs be eliminated only gradually.
I disagree with Adam Smith only rarely and never lightly. Smith’s learning and wisdom were so immense that an ordinary mortal cannot help but worry when his thoughts don’t fully accord with those of the Great Scot. Yet I’m not persuaded by Smith’s argument that at least some unjust trade barriers be reduced only gradually rather than immediately. Indeed, as you’ll see, I’m not persuaded that Smith himself was persuaded by his arguments on this score.
In making his case, in The Wealth of Nations, for eliminating some trade restraints gradually, Smith’s first expresses concern for affected workers:
The case in which it may sometimes be a matter of deliberation, how far, or in what manner, it is proper to restore the free importation of foreign goods, after it has been for some time interrupted, is, when particular manufactures, by means of high duties or prohibitions upon all foreign goods which can come into competition with them, have been so far extended as to employ a great multitude of hands. Humanity may in this case require that the freedom of trade should be restored only by slow gradations, and with a good deal of reserve and circumspection. Were those high duties and prohibitions taken away all at once, cheaper foreign goods of the same kind might be poured so fast into the home-market as to deprive all at once many thousands of our people of their ordinary employment and means of subsistence. The disorder which this would occasion might no doubt be very considerable.
Smith pretty clearly here endorses gradualism. But now read the very next sentence:
It would in all probability, however, be much less than is commonly imagined, for the two following reasons:
The first of the two reasons why immediate removal of trade restrictions “would in all probability” not cause excessive “disorder” is that many manufacturers have large export markets. Smith argued that a sudden increase in imports into the home country would have little effect on the market for the outputs of such manufacturers and, hence, little impact on these manufacturers’ workers.
Of course, not all manufacturers have large export markets. Not to worry, Smith seems to say, for there’s a second and more fundamental reason to suppose that if large number of workers are thrown out of their current jobs by a sudden surge of imports, these workers will easily enough find new employment:
[T]hough a great number of people should, by thus restoring the freedom of trade, be thrown all at once out of their ordinary employment and common method of subsistence, it would by no means follow that they would thereby be deprived either of employment or subsistence.
Smith gives the example of the huge release of labor power from the military in 1763 with the end Seven Years’ War. He observed that “[n]ot only no great convulsion, but no sensible disorder arose from so great a change in the situation of more than a hundred thousand men.”
Smith writes as if he himself doesn’t really believe his argument that workers stand to suffer much if trade restrictions are eliminated immediately rather than gradually.
What about business owners and investors who suffer as a result of trade liberalization? Smith seldom showed much regard for business people, viewing them as useful only because and insofar as they play an important role in enabling the economy to increase outputs of goods and services for consumption by the masses. Yet in making his case against immediate elimination of trade restrictions, Smith uncharacteristically exhibited more concern for business people than for workers. He wrote:
The undertaker of a great manufacture, who, by the home-markets being suddenly laid open to the competition of foreigners, should be obliged to abandon his trade, would no doubt suffer very considerably. That part of his capital which had usually been employed in purchasing materials and in paying his workmen might, without much difficulty, perhaps, find another employment. But that part of it which was fixed in workhouses, and in the instruments of trade, could scarce be disposed of without considerable loss. The equitable regard, therefore, to his interest requires that changes of this kind should never be introduced suddenly, but slowly, gradually, and after a very long warning.
(All quotations above are from Book IV, Chapter 2, of Adam Smith’s 1776 masterpiece, An Inquiry Into the Nature and Causes of the Wealth of Nations.)
Smith then wisely cited the unfortunate plight of such investors – that is, of investors who, because of trade liberalization, suffer losses of asset values that exist only because of earlier-imposed trade restrictions – as a reason not to impose trade restrictions in the first place. But Smith nevertheless does seem to regard the sudden loss of such asset values as a reason not to eliminate existing trade restrictions immediately.
Taken in its entirety, Smith’s case against eliminating some trade restrictions only gradually, instead of with the push of a button, is quite odd. Not only does he immediately backtrack, almost to the point of retraction, when discussing the plight of workers in jobs subject to competition from imports, he suddenly shows sympathy for the very business people whose venal clamoring for monopoly privileges he mercilessly skewers throughout all of The Wealth of Nations.
Perhaps in his expression here of sympathy for protected business people, Smith was being facetious. I’d like to think so, but I don’t. I believe instead that in the above-quoted passage Smith offered an avenue for tariff reduction that he hoped was practical politically. That is, given Smith’s utter hatred of business people who enjoy monopoly privileges, it’s unfathomable that he really felt sympathy for them suffering whatever losses they’d endure as a result of an immediate removal of all trade restrictions. It’s more likely that, being a clear-eyed realist hoping to raise the practical prospects of such removal, Smith figuratively bit his tongue and argued that at least some trade restrictions should be removed only gradually. Smith wasn’t one to allow the perfect to stand in the way of the good.
Whatever his true intention, Smith’s intellectual and ethical case – as opposed to what is perhaps a politically practical case – for a gradual rather than an immediate move to free trade is unconvincing. Or, at any rate, this case doesn’t convince me.
International trade is only one source of economic change. Other sources include changes in demographics as well as advances in technology, in management practices, in communications, in financing, and in logistics and distribution. And these changes occur incessantly in a market that’s as dynamic and as large as that of the US. Happily, there are no serious calls to allow changes from these non-trade sources to be introduced only gradually. I therefore see no reason in economics or in ethics to single out trade as a source of economic changes that can be tolerated or justified only if they are introduced bit by bit.
Like Adam Smith, I’d prefer that trade be liberalized gradually as opposed to not at all. But perhaps unlike him, if I were put in front of a button to eliminate immediately all species of economic protectionism, I’d press it with gusto.
The post Do Not Tarry In Eliminating Tariffs and Other Protectionist Measures was first published by the American Institute for Economic Research (AIER), and is republished here with permission. Please support their efforts.