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Neo Protectionism

Traditional protectionists, like America’s founding fathers, needed no other rational for imposing tariffs than that they benefited American companies. The second law enacted by the newly formed federal government of the United States was the creation of tariffs.

“Us versus them” was the basis for American trade policy for the first hundred years of our history. However, by the middle of the 19th century, the definition of “us” became subject to debate. The northern industrialized states, which held a majority in government, favored protective tariffs culminating in the Morrill Tariff of 1861 which more than doubled tariffs on durable goods. The South, which traded cotton for these goods, resented paying the premium for, what they perceived, as the sole benefit of northern industry. “Us versus them” became North versus South and historians point to this debate over tariffs as a contributing factor for the American Civil War.

This debate over the definition of “Us” was settled at Appomattox with Lee’s surrender. Protectionist trade policies continued until 1912 when America instituted the Federal Income Tax. This shift in economic policy was caused by a new economic theory, “Comparative Advantage”. It argued that the vast majority of people are better off if restrictions to trade are removed. The debate over America’s trade policy shifted from “Us vs. Them” to “Enlightened vs. Unenlightened”. Protectionists were viewed in the same unflattering light as those denying Evolution. Science, the enlightened argued, settled the question of proper trade policy in favor of Free Trade. Protectionists simply didn’t understand that Tariffs introduced detrimental drag in the economic engine, and, that that inefficiency hurt everyone.

Over the next hundred years of our nation’s history the principle of free trade became dogma. Even as America put unheard of limits on domestic industry for the purpose of protecting workers, consumers, and the American market, from the excesses of laissez-faire capitalism, free international trade was considered sacrosanct. The only rational left for Tariffs became to affect political or retaliatory. Tariffs were relegated to a means to chastise our enemies or as leverage to open foreign markets. But, the “Enlightened” agreed that in an ideal world, there would be no restrictions on international trade. Free Trade became an axiom of economic science rather than a result.

Neo-protectionists challenge this dogma. We argue that laissez-faire capitalism is no more appropriate for international trade than it is for domestic trade. We point out that the Comparative Advantage theory which is the economic basis for free trade policy is itself based on two assumptions which are no longer true.

The first assumption is that capital is immobile. The comparative advantage theory assumes that if a country does not have an advantage in producing a particular good or service, that country will take its capital and invest in another industry where it can be competitive. In practice however, if an American company can not operate competitively within America, it will simply move its operations to a country where it can compete. Money, free of national boundaries, seeks absolute advantage regardless of nationalistic concerns.

One may argue that money is stored labor, created by the sweat and ingenuity of a country’s people and while that stored labor (money) may move freely across international boarders, a country’s population cannot. Thus, there exists a residual capital represented by a people’s willingness to work which remains immobile. While the accumulated portion of a nation’s wealth is free to globally seek greatest return on investment, the wealth represented by the American people must seek out a comparative advantage. American’s, fired or laid-off from outsourced jobs, must seek some niche where they may earn a living. The immobility of capital represented by a nation’s workforce might be argued to save the Comparative Advantage theory and by extension the argument for Free Trade policies. It may be argued that mobility of capital may make the transition from one industry to another more difficult, but it does not entirely invalidate the theory Comparative Advantage.

However, Comparative Advantage is based on another assumption, one that does invalidate its application to our current global economy. That is the assumption of full employment (for the purpose of this discussion we will call that 95%). Over the past hundred years, man’s ingenuity has elevated his productivity to levels never before seen in human history. Advances in Science, Agriculture and Engineering have made it unnecessary for the entire population to work in order to fill the material needs of mankind. Comparative Advantage and in fact economic theory in general, is based on the assumption that more is better. That demand is unbounded. That, if a nation’s population cannot compete in one industry, there is always an unmet demand somewhere else that can be profitably exploited. But, the cornucopia of global capitalism, fueled by human ingenuity, pours out food, clothing, housing, entertainment, and all man’s material needs without the efforts of his entire population. The problem is no longer one of resource allocation. It is one of distribution and capitalism has no mechanism for distributing goods and services to those with nothing to barter.

America is on the leading edge of an economic revolution brought about by our own achievements. Western science and technology, which has been freely exported around the world, has altered the basic assumptions of America, that under capitalism any man or woman can, with hard work, create a better life for their children than they had growing up. For those, like me, gifted by their parents with an education, capitalism still works. But it’s only a matter of time before an education and technical competence will only be a license to compete, not a guarantee of success. As the percentage of the world’s population needed to fulfill the world’s material needs declines, competition for jobs will increase, as will unemployment. Capitalism will insure the best and the brightest are rewarded, but capitalism has no need for the rest of the population. The gap between the rich and the poor will continue to widen as the middle class is pushed up or down the economic ladder, with the vast majority being pushed down. Eventually the unemployed populace of our nation will demand the government provide for their needs. America will become a welfare nation paid for by the few who give the unemployed just enough to stave off revolution. The result will be socialist America with its populace dependant on its government to meet their basic needs.

America has long recognized that its citizens need protection from the excesses of capitalism. Through laws such as a minimum wage, child labor, anti-trust, environmental protection, workplace safety, collective bargaining, product safety, and domestic taxation, America has, with good cause, limited capitalism and imposed inefficiencies on our economy which make us simply unable to compete with products produced in countries free of social, environmental, and moral concerns. In order for America to manage the economic changes brought about by the world’s technological advances in productivity, America may well need to introduce further inefficiencies to the capitalist system. Inefficiencies such as laws further limiting the work week, laws mandating mandatory paid vacations, and increases in taxes to pay for social programs for the care of those economically disenfranchised.

But, America can do none of these things so long as we surrender control of our markets and our economy to foreign imports. Imports produced under forms of capitalism outlawed in this nation. America must extend the same philosophy that allows us to limit domestic capitalism for social good to international trade. If not, these laws for social good will continue to devastate the American economy by making it unprofitable to manufacture here. There is simply no other way to preserve American culture in the face of the economic revolution that our advances in productivity have brought about.

We Neo-protectionists believe that tariffs on products produced contrary to domestic law are necessary in order to protect America’s economic future. We believe that such tariffs, once agreed on in principle, may be implemented in a way which will benefit not only Americans, but the world as whole as we remove the incentives for exploitive business practices from American markets.
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