They benefit a small number of producers while raising costs for everyone else.
The Trump administration is now moving to put some teeth on its promise to punish “unfair” trade from China and other countries. This week it imposed punitive tariffs on Chinese and South Korean manufacturers of washing machines and solar panels. The move is ill advised on its own, but you can be sure this is just the beginning of renewed debate over the benefits of free trade, with any number of once-passionate opponents of the government’s “picking winners and losers” rushing to defend the sagacity of “America first” economics.
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One of the most difficult distinctions for people in general and politicians in particular to grasp is the difference between being pro–free market and pro-business. There are many reasons for this confusion. For politicians, the key reason is that businesspeople are constituents and donors, while the free market is an abstraction. Also, because capitalists tend to lionize successful people, we assume they share our philosophical commitments. But it is a rare corporate titan who favors a free market if doing so is bad for his or her bottom line.
Adam Smith recognized this in his canonical 1776 work The Wealth of Nations. “People of the same trade seldom meet together, even for merriment and diversion,” he wrote, without the conversation ending “in a conspiracy against the public, or in some contrivance to raise prices.”
This doesn’t mean that capitalists are evil; it means they’re human beings. Virtually every profession you can think of has a tendency to dig a moat around itself to protect its interests and defend against competition. A few years ago, the American Academy of Pediatrics came out against affordable health care for children. Retail chains such as Walmart and CVS started opening in-store clinics to provide affordable basic health care, such as vaccinations. The pediatricians rightly saw this as a threat to their monopoly over kids’ medical care. Obviously, the pediatricians didn’t think they were villains; they simply found rationalizations for why everyone should keep paying them top dollar for stuff that could be done more cheaply.
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What both Smith and the Founders understood is that such conspiracies can last only with the help of government. As the economist Joseph Schumpeter argued, in a system of free competition, monopolies cannot long endure without government protection.
Sometimes the government protects certain industries in order to goose employment, or in the name of keeping prices low for the people or high for the producers (e.g. farmers, favored industries, etc.). But such subsidies not only stifle innovation, they also end up hurting consumers or taxpayers or both.
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Every form of statism — from absolute monarchy to socialism to fascism — involves the state forming an alliance with some faction or another and giving it preferential treatment. Protectionism is simply statism applied to trade. In short, it is a conspiracy against the public to raise prices, and nothing more.
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Very good from @JonahNRO on etatism Trumpkin-style. https://t.co/LQKiLqyxiN
— Kevin D. Williamson (@KevinNR) January 26, 2018
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