“We are suffering from the intolerable competition of a foreign rival, placed, it would seem, in a condition so far superior to ours for our production of light that he absolutely inundates our national market with it at a price fabulously reduced. This rival is none other than the sun.” – A Petition of the Candlemakers
Before US President Donald Trump’s election in 2016, a 2015 report from Credit Suisse, the Global Trade Alert, named the United States the most protectionist country in the world. Rounding out the top seven were: India, Russia, Brazil, China, Europe, and Japan. Known for his isolationist policies and nationalist tendencies, Trump was not the only president to make policies defending domestic industries at home. Biden, too, has been accused of continuing most of the Trump strategies, just without the fire-breathing zeal. And so, it continues, the American government regularly interferes in the marketplace by placing artificial limits on trade.
By restricting imports from other countries, governments remove competition, capitalism’s greatest asset, to prop up domestic business at costs detrimental to the consumer. Eliminating competition removes the incentives to continually streamline and conserve resources thus driving up the costs of goods, both domestic and international. The favorite tool of protectionists is tariffs, which restrict the flow of goods from foreign markets by making them more expensive and less appealing, keeping dollars in the domestic markets. Protectionist policies can also include quotas, embargoes, and subsidies.
Henry George, a nineteenth-century political economist and journalist wisely noted, “What protectionism teaches us, is to do to ourselves in times of peace what enemies seek to do in times of war.” Namely, embargoes, and other restrictions on economic activities between countries. Trade wars are peacetime sanctions where Country A puts tariffs on Country B only to have that country retaliate with their own restrictions in a tit-for-tat counterattack. A form of economic warfare, trade wars may include boycotts, the blocking of money or assets, or cutting off supplies and resources altogether, with the express intent of weakening the foreign country financially.
In Frederic Bastiat’s 1845 book, “A Petition of the Candlemakers”, Bastiat provides a satirical tale of the use of protectionist tariffs that stifle competition and inflate costs for the consumer. France’s lighting industry of candlemakers, et al., petitioned the French government to do something about the sun, a foreign rival, that was causing harm to their businesses. By forcing people to block out the sun by closing their drapes during the day, this protectionist policy would allow the domestic markets to increase their profits along with their suppliers and remain in business. Since governments already make policies to protect their domestic producers, Bastiat saw no reason they wouldn’t also use anti-competition measures against nature, the sun. And since governments obliviously sacrifice the consumer to the producers in almost every case, why stop now?
The unintended consequence of the petition was to waste the free benefits of the sun while increasing the need for artificial light. Much like a low-cost foreign good, the sun threatened the domestic market of French manufacturers. Yet, while it may have had an unfair advantage, nature can be a wealth creator, allowing consumers to save money and use it for other purposes. In fact, when a foreign product is exported to us at a lower cost than what we can produce ourselves, it is a gift to us, a form of foreign aid.
Part of the free trade movement in France, Bastiat took over where Adam Smith’s earlier advocacy of free market trade left off. As described in his 1776 book, “The Wealth of Nations”, Smith argued against countries loading foreign goods with duties in order to expedite their exclusion. By doing so, governments distort market prices and ingrain inefficiencies in the economy. Even today, the World Trade Organization (WTO) discourages the use of tariffs to prevent the market flow of goods and services across borders.
Allowing low-cost goods to compete forces businesses to develop a comparative advantage. If someone can provide a product or service cheaper than another can produce it themselves, it is better for all. Through specialization, higher labor productivity will increase overall output and allow for more consumption of much-needed commodities. We are always richer through exchange because low foreign labor gives us low-cost goods, freeing up money for higher uses.
In economist Pierre Desrocher’s 2012 book, “The Locavore Dilemma”, Desrochers argues that globalized supply chains have already determined that products are best produced in the most advantageous locations and then transported with the greatest efficiency. Future food needs will likely be less local and more global because food production best occurs where it's most efficient to produce. Whether national or international, if oranges from Florida grow more naturally for longer periods due to their climate, it is always better to use nature than to attempt to imitate it locally.
The purpose of trade is to both expand wealth and promote peace. American businesses should be left to flourish or fail, by keeping the government out of the marketplace and letting them compete unencumbered. Doing so will allow the best to win, and thus, merit the profits they’ve earned.
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