Average People Used To Understand That Protectionism Was Welfare for Special Interests That Hurt Consumers. When Did This Change?

I have been watching the second season of Victoria on PBS (quite good, I think) and much of it has covered the famines of the 1840's and the debate over the Corn Laws.  At the time, it seems that average people understood that the British tariffs on imported food were in place solely to protect the agricultural profits of aristocratic (and by definition well-connected) landowners while hurting the country as a whole by raising food prices for every consumer and contributing to the famines that were sweeping Ireland and parts of England.

Trump's proposed tariffs are simply a disaster.  A lot of the media seems to believe the biggest reason they are bad is that they will incite retaliatory tariffs from other countries, which they almost certainly will.  But even if no one retaliated, even if the tariffs were purely unilateral, they would still be bad.  In case after case, they are justified as increasing the welfare of a certain number of workers in targeted industries, but they hurt the welfare of perhaps 100x more people who consume or work for companies that consume the targeted products.  Prices will rise for everyone and choices will be narrowed. This is Bastiat's classic seen and unseen -- the beneficiaries (say in the steel industry) are easy to identify, but the individual consumers who change their purchasing plans or industries that change their investment plans are frequently invisible.  It is the height of childish public policy to pretend those hurt by this don't exist merely because they can't easily be interviewed on TV.

Well, not completely invisible:

 A proposed expansion of an Exxon Mobil Corp oil refinery could be impacted by the Trump administration’s plan to place a 25 percent tariff on imported steel, a source familiar with the matter said on Thursday.

Exxon has been considering increasing its North American crude refining capacity since at least 2014, the company has said, but has not disclosed a final decision. An Exxon spokeswoman was not available for immediate comment.

 The nation’s largest oil producer has been weighing adding new processing capacity to its 362,000 barrel-per-day Beaumont, Texas, plant that could make it the nation’s largest. (Reporting by Erwin Seba Editing by James Dalgleish)
  • slocum

    "This is Bastiat's classic seen and unseen -- the beneficiaries (say in the steel industry) are easy to identify, but the individual consumers who change their purchasing plans or industries that change their investment plans are frequently invisible."

    In this case, the people hurt by this may not be that hard to see -- auto-companies, suppliers and their workers, appliance manufacturers, the construction industry. There are a lot of working-class Trump supporters in those industries too, and they *may* be just clued in enough to figure out they'd be getting screwed over. We can hope anyway.

  • Handle

    Let's say country A has free trade with country B. Country A puts has a carbon tax to lessen global warming, but country B doesn't. Pretty soon, all carbon-intensive industry moves to country B due to regulatory arbitrage, but the supply and demand for carbon intensive produces stays more or less the same, as does the pollution (which may even go up, because now there is additional use of energy in transport.)

    The carbon-intensive companies of country A complain, "You have the worst of all worlds. You have done nothing about global warming, since emissions are the same, but meanwhile you have bankrupted our entire industry, caused a lot of disruption, lost all local know-how on how to run these businesses, and ensured that any technological progress that happens in our fields now happens abroad, so that even if we wanted to, it might be practically infeasible to restart any of these operations in this country against giant going-concerns elsewhere. This is nuts, not to mention very unfair. You've passed a law that has reduced the value of our property to zero, but in these cases you aren't required to pay anything in compensation - so obviously you won't. But a protective tariff to balance things out would be a form of fair compensation, that also wouldn't yield the worst of all worlds result."

    The point of this story is that lower consumer prices aren't the whole story, and in a comprehensive analysis, must be balanced against what's happening to the production side of the equation. The main question is why are some things from abroad so much cheaper. Sometimes it's a "clean" comparative advantage story, e.b., "Pineapples won't grow in Alaska without expensive greenhouses," and there's not likely any good case for tariffs, but sometimes it's because we're strangling our own domestic businesses and telling them to compete with entities not nearly as constrained, which isn't a fair and level playing field at all. Losing whole sectors, especially those that operate at the technological frontier, and losing a local deep bench of folks with the know-how of how to compete in those industries, are real costs for the long-term potential welfare of the whole national economy.

    Getting rid of bad regulations would be the best answer, but in political conditions where one must accept those as given, I think it's reasonable to admit that it is at least theoretically possible that protective tariffs might be the least worst option, and that one can't dispose of the matter perforce without additional analysis.

  • Mike Powers

    "Tariffs are bad! Even if a foreign government is using subsidies to keep their prices low, that doesn't matter because Market Distortions Are Always wrong! So tariffs are bad!" (turns around) "Subsidies are bad! Even if subsidies result in more people being able to buy a particular product that's wrong, because Market Distortions Are Always Wrong..."

  • Mike Powers

    but...but...but less money equals better than! LESS MONEY equals BETTER THAN! How can you say that there is ever, EVER a case where LESS MONEY does not equal BETTER THAN?! LESS. MONEY. EQUALS. BETTER. THAN.

  • davesmith001

    Yes. Both tariffs and subsidies are bad. Both distort prices and adversely impact resource allocation making the world poorer on average.

  • Agammamon

    Yes. You've got it in one. And Coyote has been a consistent opponent of both tariffs and subsidies - because they are the same thing.

  • mlhouse

    But yet, these are the policies that htey have been wanting for generations.

    WHile I do not support this move, electorally it isn't as bad as anyone claims. In fact, it is typical Trump political genius.

    The other aspect I like to bring out in these discussions it that where in this universe is "free trade" practiced? The United States certainly does not practice free trade as certain companies like Boeing get huge subsidies from the government and many other products have very high tariffs, such as sugar. Most other countries are even worse. So, where is the free trade? And if there are groups that directly suffer, the same low end industrial worker, why should they bear the brunt of this activity every time?

    Lastly, these tariffs are not your father's or grandfather's tariffs. The most likely outcome is that these foreign steel and aluminum production will move into the United States just as automobile manufacturing and coming soon solar panels.

  • mx

    When did it change? I'd say about the time an angry man started getting on television yelling about the trade deficit, and it has persisted as long as he continues to be ignorant of economics. He told the nation we were losing and he could make us win, and a lot of people believed him without bothering to ask what game we were even supposed to be playing.

    https://twitter.com/jonathanvswan/status/969549478469480454

  • GoneWithTheWind

    It all begs the question. The current situation is NOT free trade. The trade agreements were written to benefit special interests. In the process it gives us cheap steel, lower tax revenues (from overseas manufacture) and a dependence on foreign largess if we need steel in a critical situation. If China gets unhappy about our interfering in the South China Sea and sinks one of our carriers AND cuts off all steel imports to us how long will it take to get domestic production of steel going? Too late China wins!

    There is a strategic reason for us to manufacture our own steel.

  • Not Sure

    "If China gets unhappy about our interfering in the South China Sea..."

    There's an easy way to keep that from happening.

  • Magua1952

    One thing wealthy economies have in common is protectionism. China, Japan, Germany and the US are mercantilists. We have some naive individuals who preach free trade but there are 12,000 US tariffs. To the extent we have practiced free trade our manufacturing base has disappeared. It has nothing to do with free trade; there are badly managed trade agreements. There are real consequences in broken lives.

    Our nation grew at its greatest rates behind high tariff walls. The Brits dabbled in free trade, when they were the work shop of the world, and it took a couple of generations for the US and Germany to dwarf Great Britain's manufacturing. The "Great" part no longer applied.

    Economist who believe in free trade will assert it is a wise course even when trade competitors use tariffs and predatory pricing to demolish our industries. "Free trade" is an aspiration that has not existed in practice on planet earth. Some have told me native Americans were free traders before the white men appeared. Alas there is no written history to support or contradict that notion. Like "peace on earth, good will to men", "free trade" is a meaningless slogan. Sure it seems a nice sentiment but people aren't like that. They look out for their own.

    The same economists claim the Smoot Hawley tariffs caused the Great Depression. It takes about 40 to 60 minutes reading to demolish that claim. No one ever reads about those tariffs. They were insignificant.

  • GoneWithTheWind

    Which as I remember that is what nations tried in the 1930's with Germany.

    You do understand that the South China seas are open ocean and it would be a terrible mistake to allow some nation to assert sovereignty over an entire ocean. It is important for people living in Australia, New Zealand, Indonesia and the Philippines that this is aimed right at them.

  • Roy_Lofquist

    Didja ever think that maybe this isn't about steel and aluminum? Maybe it's about Lil' Kim. Trump to Xi - sweetheart, we could make beautiful music together but that crazy neighbor of yours keeps banging on the trash cans. Uh, about that SOB - he's still real loud.

    China cleans up the neighborhood. Trump takes the sober advice of his advisers and backs off the tariffs. Everybody saves face and the romance flowers once more.

  • mx

    We're imposing tariffs on the entire world's steel and aluminum production to push China to pressure North Korea? No, I didn't ever think that was what's happening, because it doesn't make sense. How does starting a trade war with Canada and the EU advance any objective related to North Korea?

    Trump campaigned on tariffs. Before he even took office, he straight up said "here’s something I’ve always said: Ten percent tariff or tax to do business in the United States. For everybody. China. Everybody. Straight across the board, 10 percent." This is what exactly what he believes in, and frankly, it's the most consistent policy position he's ever held. Why are you pretending he has some grand master plan other than exactly what he's said all along?

  • Roy_Lofquist

    We import a lot of steel from China. https://www.trade.gov/steel/countries/pdfs/imports-us.pdf

    China has a huge excess of steel production capacity that it is struggling to reallocate. https://piie.com/blogs/china-economic-watch/chinas-excess-capacity-steel-fresh-look

    "The Commerce Department will impose the tariffs under a rarely used law that allows emergency trade sanctions for “national security.”"

    "Previous administrations have levied anti-dumping duties on Chinese steelmakers. In March 2016, the Obama administration levied tariffs of more than 200 percent on certain Chinese steel products, but that only dampened Chinese steel exports slightly. Shortly after taking office, the Trump administration announced that a new wave of tariffs was coming on low-priced Chinese steel sheeting.

    But these measures tend to have little effect, according to mainstream economists. Chinese producers can get around such restrictions by shipping steel to a third country before exporting it to the United States.

    So Trump and Ross decided to take extreme measures, dusting off the 1962 Trade Expansion Act, which allows emergency trade sanction for “national security” reasons."

    https://www.vox.com/2018/3/1/17066838/white-house-trump-steel-tariffs

  • mx

    Yes, and if the tariffs applied only to Chinese steel, all of the things you say could be of some relevance. But they apply to all steel worldwide.

    I'd also point you to the President's statements as to his intent here, such as "trade wars are good" and "$800 Billion Trade Deficit-have no choice!," not to mention Sec. Mattis's letter citing the negative impacts of these tariffs on our military allies for evidence that any "national security" justification is a smokescreen.

  • Roy_Lofquist

    Trump's general remarks on tariffs and his specifically stated reason for this tariff (national security) are not mutually exclusive. He gets a two'fer.

  • CapitalistRoader

    Then maybe the people living in Australia, New Zealand, Indonesia and the Philippines should assert their sovereign authority to stop China from taking over that hunk of ocean; develop the necessary military capacity to do that.

  • CapitalistRoader
  • Just Thinking

    We have not seen the final version of Trump's tariff proposals. I suspect it will not be what is generally understood to be the proposal at this point in time.

    The media and detractors have not spent much time exploring the unfair practices that Trump is referencing. The best outcome is that Trump will pull the proposed tariffs in exchange for a rollback of these unfair practices.

  • Just Thinking

    The biggest fear I had about a Trump Presidency was possible attacks on international trade. And my fear was muted because I believed that the voices of reason would prevail. (Foolish me! Have I seen the voices of reason prevail on the hysteria surrounding Russian collusion suspicions? The voices of reason are scare in today's politics.)
    I see virtually no attention in the media about Trump's allegations that we need to do tariffs because our industries are being traded unfairly. I am interested -- how are they being treated unfairly? Perhaps Trump thinks that he can pull off a negotiating gem -- "I will withdraw the tariffs if you roll back your unfair practices."
    Nevertheless, I think we are finding out that negotiations in politics do not work like they do in politics. Example: the Democrats would rather have the Dreamers live in limbo than negotiate with Trump.

  • mx

    So basically, the President said a bunch of nonsense because he got angry one day and wanted to start a trade war, and you think somebody who knows what they're talking about might come along and try to clean up after him? There's no good outcome from living in a country where that's the policy-making process.

  • mx

    I mean, he's threatening tariffs on European cars now. Is that for national security too? The man is a grown-up adult with an important job and he should be held responsible for what he says. If he declares he wants tariffs on everything and specifically links these tariffs to the trade deficit, I don't see why we should be giving him a two'fer: he said what he really believes; it's pretty much the one position he's held consistently all along.

  • Roy_Lofquist

    mx, don't go didactic on me. I'm too old and cranky to put up with that shit.

  • Just Thinking

    I think the most people are grabbing a couple of phrases without really paying attention to what Trump is actually saying. Yes, he did say "trade war," but he was not referring to Smoot-Hartley type of tit-for-tat. He was talking about American businesses getting on equal footing with foreign competitors. He wants to go to bat for American businesses; not necessarily to subsidize them, but to make the playing field more fair.
    You have not been paying attention if you think that President "got angry one day and wanted to start a trade war." This idea of tariffs to combat unfair foreign practices was a frequent theme of his campaign. I do not know -- and I highly doubt -- that the president's approach is the best idea. But I do know that if no one is paying attention to what he is actually saying and responds to that, then the President is more likely to forge ahead because "nobody" is paying attention to the issues that concern him.

  • Not Sure

    The South China Sea? As reported on by BBC here?

    http://www.bbc.com/news/world-asia-pacific-13748349

    Why is this an issue that the United States needs to get in the middle of?

  • MSO

    So China exports steel and aluminum to Mexico and Canada where it is turned into products that are then exported to the US sidestepping NAFTA. China has unlimted access to US markets but US has limited access to Chinese markets. This known as fair trade.

  • Dan

    So what. You seem to be making the argument that the trade between China and the US should be equal, it should go both ways. What you are missing is the trade is not between the countries. The trade is between a supplier and a demander, not the two governments. If an American “demander” wants to spend his money with a Chinese “supplier” what business is it of anybody else - or either government? Why do you care if I buy a product from a Chinese, but not from a Texan? Under what circumstances is it any of your concern?

  • BobSykes

    "Average people used to understand..." Well, that was before 40 years of more or less free trade devastated the working class and stopped economic growth for the middle class. The Ruling Class captured all the economic growth over that period and even clawed income away from the working class. Hence Trump. After the Ruling Class either removes Trump on some bogus charge, or in frustration kills him (very likely), the working and middle classes will turn to a native Hitler, and the fun will begin in earnest.

  • MSO

    It must be that word 'trade' that is confusing me.

  • Just Thinking

    The working class is doing fine. I am so much better off than 40 years ago. To some degree, the increased payments to the working class has been in terms of increased health care payments rather than wages. But the main issue for the working class has been the loss of middle-class values -- such as fidelity to the spouse, devotion to the family, prudent spending, etc.
    No doubt, those without college education struggle more than those with such education, but to say that the working class has been devastated is an overstatement.

  • TheRiver

    If you simply add one missing factor you will see your mistake. "We the people" did not get a vote or a fair shake. The trade agreements are hammered out to benefit international corporations and other countries NOT Americans. WE the people should decide what is fair.

  • Dan

    So if I want to trade my money for a Chinese’s product I should be allowed to only if other people vote to allow it? I’m no fan of trade agreements. Far from it. I don’t want trade agreements that are made between governments whether they are for the benefit of international corporations or not. As I said above if a Chinese vendor has a product he’s willing to sell to me and it’s a product I want at a price I agree to it ain’t nobody’s business but mine and the Chinese guy’s.

  • stevewfromford

    I'd say the Exxon statement is crap and, if actually made, was used only for effect, I doubt the cost of the refinery "expansion" would be effected by more than a few percent due to the possible, increased cost of the steel due to the proposed tariff, if it even happens. There likely isn't even 100,000 tons of steel being used in the addition and even if the steel increased by the full 25% we are talking a $10 to $15 million increase, tops, which is peanuts in the whole scheme of things when it comes to refinery cost analysis. Heck the natural steel market price increases over the last few years far exceed the $100 to $150/ton the tariff might add!
    It might be good to do a little research before accepting.uncritically, what CEO's with an agenda spout!

  • Magua1952

    When federal revenue was only through tariffs government spending averaged 3% of the economy. With income and corporate taxes the average has been 20%. Which is the greatest market distortion? One can often refrain from buying high tariff goods and there is a ceilng on how much government can tax that way. No escape from income taxes.

  • John Smith

    When you win an election, you will have a chance to try your ideas.

  • jandr0

    [The media and detractors have not spent much time exploring the unfair practices that Trump is referencing.]

    "Unfair practices." Selling steel at a good price to the USA is "unfair!" Clearly one should not allow US manufacturers access to steel at a good price, since that might make the US manufacturers more competitive. And competitive US manufacturers are "unfair," hey.

  • jandr0

    [China produces the lion's share of the world's steel.]

    So? What percentage of total steep purchases are the US buying from China, hey? THAT is the question.

  • jandr0

    [ He was talking about American businesses getting on equal footing with foreign competitors.]

    Yes. And what he meant was making it easy for his sponsoring self-interested friends. Do not confuse the two.

    [...the President is more likely to forge ahead because "nobody" is paying attention to the issues that concern him.]

    What concerns "the President" is power plays. The rest are all just words he uses to fool those who want to believe.

  • jandr0

    [...a dependence on foreign largess if we need steel in a critical situation.]

    No. The level of steel NOT produced locally and NOT imported from allied countries is too small to bother about. Unless you want to hype it up as a rhetorical, political point.

    [There is a strategic reason for us to manufacture our own steel.]

    See immediately above.

  • jandr0

    [I'd say the Exxon statement is crap and, if actually made, was used only for effect, I doubt the cost of the refinery "expansion" would be effected by more than a few percent due to the possible...]

    Please look up the term marginal cost.

  • jandr0

    [But the main issue for the working class has been the loss of middle-class values -- such as fidelity to the spouse, devotion to the family, prudent spending, etc.]

    Thank you for conjectures, projections, and speaking on behalf of the working class.

    Signed,
    The Working Class.

  • jandr0

    [This known as fair trade.]

    No. it isn't. It is known as government-manipulated trade.

    Hint, the term NAFTA gives it away (i.e. an agreement between governments).

  • jandr0

    [It must be that word 'trade' that is confusing me.]

    I regret to inform you it is much, much more than that confusing you!

  • jandr0

    [Our nation grew at its greatest rates behind high tariff walls. The Brits dabbled in free trade, when they were the work shop of the world, and it took a couple of generations for the US and Germany to dwarf Great Britain's manufacturing. The "Great" part no longer applied.]

    CHEPH.

  • jandr0

    [ In fact, it is typical Trump political genius.]

    In that case, the world can do without "political genius."

    Actually, in my view, the world can do without most anything "political."

  • Charlie Z

    As I read the link you cited, we DO NOT import “a lot” of steel from China. China doesn’t even make the list of the top 10 sources is steel the US imports.

  • Roy_Lofquist

    Actually, we do. Obama imposed tariffs on China. The Chinese got around them by exporting to other countries which then exported them to the US. That's why the proposed tariffs are not specific to China.

  • Just Thinking

    Jandr0, perhaps you are an illustration of the disconnect. Rather than participate in an objective examination of what might considered "unfair practices," you make a cute remark that plays well in the media but adds no substance to the discussion.
    I do not like tariffs and have taught for years that the losers from tariffs far outweigh benefits, you by ignoring "unfair" practices, you play into Trump's hand. Perhaps a person who understood or examined unfair practices, would not just dismiss them.
    For example, (I would not call it unfair, but) one of the issues giving U.S. businesses a disadvantage is differing tax structure. Other countries rely on VAT of most of their government's revenue; we rely on income tax. Foreign companies do not need to pay VAT on exports to the U.S., but U.S. exporters need to pay taxes on their exports.

  • MSO

    You're hardly informing me of anything.