So, Discordia, when do you think economic protection is a good thing?
Thanks,
Rob
You are focusing on the money aspect of these decisions, but the change in money is not a complete measure of change in benefits. It may be more expensive and wasteful overall to have welfare. It may nevertheless be a net benefit because it confers non-monetary peace of mind to society at large which we consider with the monetary cost. Insurance must, generally, cost more than the average schmoe will get out of it, otherwise insurance companies would go out of business. Nevertheless there are important benefits that we gain from having insurance. You commented that China would necessarily be poorer in terms of dollars, but that is not the only measure of benefits.
I could get behind a developing country protecting industries from foreign competition (only foreign, as erislover points out, you need competition of some sort. So no subsidies to single companies, just tariffs on foreign stuff), but only if it’s a temporary protection, with a set plan designed to make the country competitive in a globalised world. Basically what South Korea did, I believe.
An example of what I don’t mean would be: IIRC we (South Africa) have tariffs on computer components. However, we have no plan whatever to get companies to produce such things here, and frankly there is no reason to do so - other countries are cheaper. Such a tariff is stupid, just a hidden tax really. If the government were attempting to kickstart a local computer component manufacturing sector, it would be another matter.
I can’t think of any situations where I would favor a developed nation engaging in it.
Your right, dollars are not the only measure of benefits. There are also euros, renmibi, yen, won, rubles, etc. 
As I said, I am not an economist, but I believe that it is a tenet of economics that everything has a price. Those benefits certainly do, so the question is, again, “do the benefits outweigh the costs or vice-versa?”
Rob
The problem with protectionism is that the benefits are clear and concentrated while the costs are diffuse and sometimes indirect. Despite this there is considerable evidence that in general the costs of protectionism are greater than the benefits. You can show this quite easily using basic demand and supply analysis and there are a lot of empirical studies which show that protectionism is usually harmful.
Take for example the proposal to slap tariffs on foreign cars in the US. This will immediately benefit domestic car firms of course. But equally immediately it will hurt domestic consumers who now have to pay higher prices and will have less choice. Furthermore reduced competition will reduce innovation in the industry and this will hurt in the long run as well; I believe that recent studies show that these kind of dynamic effects are very important in practice. Any tariff will certainly lead to retaliation by trading partners as well which will hurt other domestic exporters. Furthermore reduced imports will mean less dollars in the hands of foreigners which could mean fewer tourists or fewer capital inflows which could lead to higher interest rates. And so on.
How about you, Lantern? When do you think that protectionist measures are a good thing? By protectionist measures, I am not merely talking about tariffs, mind you.
So far, we have patents, tariffs that limit foreign competition against an otherwise locally competitive industry in an emerging market, export restrictions on military secrets, and possibly measures to prop up a strategic industry. I am not sure i agree with the last in any case, and I can definitely enumerate many abuses.
Thanks,
Rob
It’s often still possible to measure this sort of intangible consumption in dollars. We simply look at the opportunity cost, what they’re giving up to make their beach trip. This can sometimes be an unwieldy yard-stick for a salaried employee using vacation time, but it’s often an easy calculation for hourly workers.
And I’m not seeing these sorts of intangible benefits from protectionism. Seems to me that the costs and benefits are pretty much all on the table: a boost to domestic industry, a hit to domestic consumers, and a potential future hit from future trade retaliation from other countries. Warm, fuzzy feelings aren’t to be ignored, but I don’t see how they fit into this discussion in an unquantifiable way. If people truly wanted to support domestic industry over imports, that preference would’ve already showed up in the market and nobody would be pushing protectionist policies in the first place.
Unless you have a specific intangible advantage in mind, and an explanation why this value is being neglected in the markets, I’d submit that a standard cost-benefit analysis is perfectly suitable for this situation. With something like welfare, we’re dealing with overall societal stability, which is an obvious benefit despite the inability to measure it with dollars. But here, I just don’t see a comparable intangible benefit. The cost is clear: China is making things more expensive for its own people. That cost might be outweighed by the industrial benefits, demonstrated in part by their strong economic growth, which means this might be worthwhile for them to do. But I can’t at this moment see any reason to include any other benefits of the less observable nature. I think everything is pretty much present in the standard calculations.
Patents really aren’t similar to tariffs or other forms of protectionism, and they’re a whole other can of worms, so it’s probably best not to include them in this thread.
I didn’t say they were similar, but they are a form of economic protection which is what this thread is about. I also think they are usually a good thing, but that is not always true.
Thanks,
Rob
Is China protecting a locally competitive industry here or are they just setting up a monopoly/oligopoly? Do you know if China’s growth is because of such protections or in spite of them? Also, when do you feel that economic protection can be a good thing?
Thanks,
Rob
If we’re using such a broad definition of economic protection then that includes all IP laws, and that’s a big can of worms which would sidetrack this thread 
Quite often, benefits without an obvious monetary value are just ignored. For instance, at some point I chose to stop working full time. I decided that the marginal benefit of working one day less was higher than the marginal cost of not working one day more. So, personally, I could have said : “not working on Friday is worth at least that much (the corresponding decrease in salary)”. Clearly, this benefit (an improvement of my quality of life) could be given a monetary value, and I had a good grasp of what this value was. But where does it appear in official statistics? Nowhere. Had everybody done the same for the same reason, you would just have noticed a decrease of France’s GDP, despite the benefits outweighing the costs.
And it’s the same with a lot of things: social programs, externalities, changes in quality of life, etc… We can know what it costs to provide healthcare to the poor, or to have a court system, but how to measure the benefits? And in my previous example, I, at least, could estimate the value of not working. But often, it isn’t the case. I know that I benefit from the presence of the local police station, but I don’t have a clue about the monetary value of this benefit. Even if you asked me how much I’m willing to pay in taxes to fund the police department, my guesstimate would probably be completely off-base, because, contrarily to a day off, it’s extremely difficult, even on an individual basis, to figure out the benefit of spending 20% more on police.
We could say “As a society, we’re willing to spend that much on police, so it means that the presence of a police force is worth exactly that”, but, besides being very arbitrary and inaccurate, we could say the same about anything. For instance : “As a society we’re willing to spend that much on policies intended to protect the local car industry, so protecting the car industry is worth exactly that”, which doesn’t help, since it’s true regardless of the cost of the protectionist policy.
Perhaps. I was sort of responding on principle. I really don’t know much about the situation, and I am all about free trade so I don’t see upsides to protectionism, either.
Eh… this kind of naturalistic reasoning is at odds with the dilemmas real people face, like chicken and egg problems in switching technologies, or whatever. (Also, see below, my wink response.)
I know nothing about China or its people, to be honest, nor yet what they consider valuable as a society. I was just put off by what I saw as an incomplete analysis. Maybe it has the same conclusion as the more complete analysis. :shrug:
But if we really wanted to help the poor, we’d have already given to charity? 
And the rest of the world!
Actually, the presence of the police force is worth exactly that. Similarly, I decided to buy a sandwich the other day. It was worth the price I paid for it. I may have been willing to pay more or I may have been pissed off that it was so expensive, but its value is equal to the price I paid at that time. The police force is more difficult to value, because you can’t have a bunch of different police forces competing to be your police force, so you (or rather the government) do have to set some arbitrary value. The same is true of all monopolies.
Fridays off for you or everyone in France are worth the attendant decline in GDP exactly. It doesn’t matter whether you think the price is a bargain or a raw deal.
FWIW,
Rob
What you’re saying here is a non-sequiter. You’re initial claim was that foreign products succeed in the marketplace because people prefer to buy cheaper products. I responded that foreign products are cheaper because the playing field is slanted in their favor. If all subsidies were eliminated and if laws were equalized worldwide, there’s no knowing how prices would change. There’s no inherent reason to believe that foreign products are always naturally cheaper. Arguing about whether our laws, restrictions, and taxes in America should be different is irrelevant to the discussion. Those are the laws we have and they’re not likely to soon change in a major way. The question is whether we should have protectionist policies to ensure that local businesses remain viable. I argue that we should.
If I may take the liberty of amplifying Hellestal’s post, I’d like to point out that while it is true that we can’t measure the benefits in dollars (we can measure the costs), we can come up with other metrics, such as number of people below the poverty line, the number who remain poor after five years, etc. We can use that metric to judge the effectiveness adding or removing money from various programs.
I’d also like to apologize to clairobscur for misunderstanding his previous post. He was stating that it is difficult to do cost/benefit analysis when you only know the dollar figure of one side of the equation and it is hard to argue with that. Again, other metrics may be available to you, although I concede that it is hard to think of one for taking Fridays off. You must not have little children at home :).
Rob
And theory and experience both show such policy always backfires because it promotes industries which are not competitive. It is better if those people go and do something where they are productive and competitive. Why should I pay more for a widget which I can buy cheaper from China? Why doesn’t that widget maker go and do something else?
No, there’s no reason to believe foreign products are always cheaper. BMW’s aren’t cheap. But if a foreign product isn’t competitive with a local one, you don’t need protectionism, because people won’t buy it anyway.
Let me ask you something… Let’s say that it takes 100 people to grow 100 acres of corn. And it takes 100 people to make one car. Now someone comes along and invents a machine which transforms corn into cars. Pour 50 acres worth of corn into the machine, and a car comes out the other side. So now we can take those 100 people that were needed to make a car, put them to work growing corn, and get two cars instead of one for the same amount of labor.
Would you make the same argument against that machine that you’re making against outsourcing? Would you demand that the machine be destroyed to protect the economy? Would you care exactly HOW the machine did it? Can you see how the existence of this machine makes life better?
Now let’s say that machine is located on an island, so we have to put the grain into barges and ship it out there. But even with the transportation cost, we still have more cars than we otherwise would, so our economy is very happy that this machine was discovered.
Now call the machine ‘Japan’.
As long as we have a democratic government, the people’s opinion on all political issues are worth something. If the ruling elite continue to believe that their superior education mandates ignoring the will of the people, there’s always change by the old-fashioned method of voting. In the last three years, the voters have knocked a number of free trade advocates out of office. Most importantly, they rejected a top globalization cheerleader as President, and instead chose a moderate protectionist.
(Besdies which, Congress generally cares much more about the opinions of lobbyists than professional economists.)
I have already explained why protectionism is beneficial for me. Say whatever you want about how it affects yourself, or Fred who lives across the street, or the world in general, but don’t try to tell me what I want. I know what I want better than you know what I want.
I’d be very surprised if cheap food from the USA is having sex with African farmers, but it makes an interesting mental image.
What really hurts African farmers is the WTO, IMF, World Bank and other international organizations that have prodded African countries into dropping their subsidies and controls. The entire system of globalization is based on a double-standard. Poor countries are forced to abandon sensible protectionist policies, while rich countries are allowed to keep them.
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