Protectionism Benefits Some at the Expense of Others

When politicians enact laws to put America first, they put some Americans more first than others. The protectionist policies sponsored by both Republicans and Democrats are ostensibly about favoring domestic industries over foreign interests. But in practice, they are as susceptible to being controlled by special interests as any other government activity.

Consider shipping regulations designed to protect domestic shipping from international competition. People can’t sail from domestic port to domestic port aboard a ship that is not built, flagged, staffed, and owned in America, per federal law. This protects American shipbuilders and the shipping companies that use those vessels, but it makes shipping more expensive.

Higher shipping costs hurt the other domestic industries that use the ships. Iron ore gets mined in Minnesota and sent via Great Lakes freighters to steel mills in Indiana, Michigan, and Ohio. The steel goes on to manufacturers who turn it into trucks and many other products. Protections for shipbuilders force those American manufacturers to pay higher shipping costs for an essential material.

We’re trying to protect the steel industry, too. Steel tariffs protect domestic steel manufacturers while costing every other manufacturer who uses steel. It’s a bad trade-off when there are 80 times more steel-using workers than there are steelworkers. But this completes the Ouroboran loop: the high cost of domestic steel is one reason ships cost so much.

Congress now has the impossible role of deciding who gets favors and who has to pay for the favors. Save the shipbuilders, cost the steelworkers. Save the steelworkers, cost the shipbuilders. And the autoworkers, the pipeline builders, construction workers, makers of fixtures, furniture and countless other products (and American consumers, but that’s a subject for another day).

Who comes out ahead? Who knows? The Congressmen who enact these laws don’t know. They’re weighing the political costs and benefits when they vote, not the intricate protectionist calculus they’ve created.

The industry representatives probably don’t know whether they’ve come out ahead, either. They just know that they have to fight hard for the protections they’ve won.

Industrial officials work hard to get their protections but avoid complaining about the favors other industries get, even when it comes at their expense. That’s part of the rules for interest groups; when you ask for special favors, you don’t complain about others’ favors too loudly. Everyone wants their legislation passed, and to have other interest groups ignore the costs.

This is the basic problem of protectionism. Protectionist policies do not follow some grand design crafted by Top Men who carefully weigh the costs and benefits of these favors and punishments. They are the product of political whims that stem from people looking for favors regardless of the costs on others.

Supporters can spin a nice yarn about how their protectionism really puts Americans ahead. Here are a couple. Government needs to foster infant industries until they figure out how to compete. There are strategic products manufactured elsewhere in the world, so we need to subsidize domestic manufacturers to protect supply chains. This tariff is needed until we can negotiate a deal that benefits American interests.

These stories often play on an important psychological phenomenon. People are prone to think it’s outsiders who are to blame. Sometimes they are. Sometimes they are not.

In addition to the psychology, the rhetoric behind protectionism ought to be persuasive. American policy ought to put Americans first. The problem with protectionism is that the rhetoric doesn’t fit the policy. Protectionism benefits some domestic industries at the expense of other domestic industries, plus the public at large. One domestic industry is not American industry, nor is one trade association the American public. Protect the shipbuilders, cost the steelworkers. Save the steelworkers, cost the shipbuilders.

Lawmakers want American workers to come out ahead, but wind up supporting policies that put other American workers behind.

This protectionism is worse than tipping the scales, though. Scales balance. Favoritism leaves us all worse off.

What people ought to want are domestic manufacturers who are good at their jobs, who compete and win on the worldwide stage. And America is winning without favoritism. Despite claims that the nation has been deindustrialized, Americans produce more than ever. Policy doesn’t need to protect some at the expense of others when so many industries succeed.

Lawmakers should stop telling stories about how they’re going to protect American industry and American workers, because what they do is to put some Americans ahead of others. We shouldn’t want our lawmakers to play favorites between domestic interests, and people should be more skeptical when policymakers dip into protectionist rhetoric.

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