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ARTICLE

Some Pros and Cons of Protectionism

MARCH 01, 1960 by RICHARD STANTON RIMANOCZY

 

With no desire to say "we told you so," we were not surprised to read an August seventeenth press release from the AFL-CIO Executive Council meeting, at Forest Park, Pennsylvania, which read, in part, as follows: "powerful support developed for a resolution that would reverse the AFL-CIO’s traditional backing for the United States re­ciprocal trade policy and request tariffs to curb imports of goods produced in foreign sweat shops."

The reason for this is simple: These goods are cutting into American production and American jobs.

This resolution, if made official, could be a turning point in America’s tariff policy.

Up to now the only voice raised in Washington against the ad­mission of foreign goods with which American industry could not compete, was that of management.

As is well known, in political matters where the number of votes behind the protest is the deciding factor, the voice of management has little influence.

But when labor speaks, official Washington listens.

There is no doubt that the State Department finds it much easier to establish cordial international relations when the Tariff Commis­sion makes liberal concessions to foreign countries, but we feel that a proper consideration for American jobs requires that no special ad­vantage be given to foreign goods entering our markets.

Stated another way, we believe that foreign goods should be given equal opportunity to compete in our markets.

For example, if the factory cost of an efficiently produced American product is $10.00 and an equivalent foreign product is offered for $7.50, the tariff should be $2.50.

The foreign producer does not have to pay the $2.50 tariff—he can raise his price to $10.00 and compete on an equal basis.

 

PRO: Rimanoczy to Wood

1. We believe that the classical theory of free trade, so magnifi­cently demonstrated in our 48 states, requires conditions that do not now exist between the principal trading nations except between Canada and the United States. In most nations trade is based more on political consider­ations than on economic con­siderations.

2. We do not believe that our elimination of all trade barriers on incoming goods would bring about reciprocal action by the world community.

 

CON: Wood to Rimanoczy

1 and 2. It seems that someone will have to start the free-trade ball rolling. To the extent that activities of other nations are based on "political considera­tions," these activities will be less productive than those re­sponding to the incentives of the free market. Even if these other countries concentrate their efforts on a few items, they’d still have the costs of producing them. There is little evidence they could produce generously for a very long time. While reciprocal action is necessary for the other countries to help themselves, a lowering of the barriers here to their products will tend to in­crease our standard of living re­gardless of what they do. The degree of improvement would probably not be great without reciprocal action, however, since there has to be an actual ex­change in order for trade to oc­cur—something has to go over there to compensate for some­thing coming over here. To say that we should wait for reciproc­ity is to say that we shouldn’t give freedom to our own people until other governments give their people freedom.

3. We do not believe that our artificial forces of government inflation and the wage-price spiral, which are pricing our goods out of the world markets, can be contained under existing political conditions.

3. I agree that they are not likely to be contained, but shouldn’t we concentrate our at­tack on the real enemies rather than raise an artificial protective device which will only let the evils perpetuate themselves?

4. We believe that under free trade, American capital would be exported in huge amounts and become a much bigger factor than it already is in tooling up the low-wage areas of the world for the mass production which could deliver the coup de grace of our domestic industrial ac­tivity.

4. You say that under free trade American capital would be ex­ported in huge amounts and be­come a much bigger factor than it already is in tooling up the low-wage areas. If this is the action that free men would take, how can we justify arrogating to ourselves to decide for our equals otherwise? Or, worse still, call down upon their unprotected heads the dictatorship of still a third party—the government bu­reaucrat?

The argument of this paragraph is also vulnerable to the argu­ment that no area of the world is going to ship goods and serv­ices to this country without re­ceiving some kind of goods and services in return—and these would have to come from some­where, probably from our fac­tories and farms!

5. We do not believe that there are many products which can­not and would not be made abroad in huge quantities if our markets would absorb them. Within one generation it is possible that we wouldn’t have to produce any steel, textiles, ceramics, machin­ery, paint, plastics, rubber prod­ucts, machine tools, or even auto­mobiles. All of these would be­come available from abroad as long as we had the purchasing power to buy them.

5. This seems to me to be a continuation of the strange argu­ment that somehow the foreign economy is going to ship things into this country without receiv­ing something in return.

How were we able to develop our marvelous industrial power dur­ing the nineteenth century when the artificial trade restrictions you advocate did not exist in any substantial way?

6. We do not believe that the American consumer who has saved money by buying a low-cost import will necessarily have more money with which to buy domestic products: he may have to use all of it or more to pay the unemployment taxes needed to support the man who would have made the import lie bought.

6. If you would advocate a law to prevent the American con­sumer from buying a low-cost foreign product, then I presume you must consider it immoral—or at least evil—for us to buy a foreign product.

You would deny to me, for ex­ample, the opportunity to buy the dictating machine with which I am dictating this letter. It hap­pens to be a German make; I bought it because it was better. It also happened to be cheaper, but this wasn’t my primary con­sideration. I am not one of those that think anything foreign is almost automatically wonderful, but I do strongly defend my right to purchase the things I want on a free market.

7. We do not believe that under the present conditions one can truthfully say that all money spent for imports will be spent for exports. These dollars can be used to pay old debts, to buy U.S. securities, to buy U.S. gold, and probably other uses which do not come to mind. We had a sub­stantial trade deficit last year and will have another this year. Granted, this is aggravated by foreign aid, but that seems to be another burden whose end is not in sight.

7. It seems to me that participa­tion in world free trade is one of the ways that we as a people can counteract the tragic effects of bloated government. The greater this burden is on us, the more we need the opportunity to buy inexpensive goods and services.

8. We believe that the tariff needed to equalize the wage ad­vantages of various foreign coun­tries would be an incentive for these countries to raise wages—give the money to their own people rather than to the U.S. Customs.

8. Wouldn’t our tariff rather be an incentive for them to hold wages down—so they could sell in this country in spite of our tariffs? Put yourself in the shoes of the businessman over there and see what you would do.

9. We believe that economic na­tionalism (self-sufficiency) which large-scale war is supposed to alleviate, has been aggravated and is just moving into high gear in the partially developed nations of the world.

9. I have never heard before that large-scale war was supposed to alleviate economic nationalism. It seems to me that the feelings of insecurity which wars develop could be a prime cause of eco­nomic nationalism. I believe that self-sufficiency is contrary to any nation’s long-range interests.

10. We believe that, eventually, free trade will come to pass, in the beginning through regional agreements between peaceful na­tions of approximately equal liv­ing standards, and, in the end, by the introduction of honestly valued currencies and assurance of lasting peace.

10. If the eventuality you sug­gest in this paragraph were likely, one would think that free trade would already exist in the case of the United States and Canada. As you probably know, this is not the case. I see no rea­son for hoping that free trade will come to pass unless those who believe in it have the cour­age to advocate it.

One of my principal quarrels with your arguments on tariffs is that you neglect to point out the desirability of free trade as an eventual goal. This results in misrepresenting your views and I believe defeats your purpose.

 

 

 

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March 1960

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