Protectionism

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A Protectionist policy is one established by the local economy with the aim of financially protecting the businesses of the country.

Example:

It's Protectionist policy to charge $50 a bottle import tax against French wines being brought into California, where the local Napa wine people have a tremendous lobby, and for some strange reason, are afraid of competing mano-a-mano, or rather, bottleo-a-bottleo, with the French. Were the local Napa people confident that their wine was a better product than that of the French, then they wouldn’t bother pushing the government to have taxes against them darn foreigners, exportin’ their swill.

This process sounds rational, but in practice, the game is never so simple. For starters, many countries actively back their exporting companies in a weird kind of economic war called dumping, which has nothing to do with either country’s bathroom habits. The process of dumping usually involves high fixed costs, high sunk cost, high capitalist expenditure industries, plus the manufacture of semiconductors, such that a country with easy access to very cheap labor, cheap capital, and no regard to environmental pollution...can etch with arsenic or gallium arsenide onto silicon semiconductors at prices dramatically less than comparable builds in the United States, with the hope of either corrupting those companies, or essentially buying market share so that they become a major player around the world.

This competitive situation, then, demands all kinds of moral and ethical questions revolving around what the notion of “fair” means...when it’s not about love or war.

The same friction gets laid in a Protectionist policy, where, rather than imposing taxes or import duties from foreign distributors, local countries place a quota on the quantity or volume of product allowed into the country from that interloper. At the extreme end, a complete embargo blocks all importing of that good. Strategically, politicians aim protectionist policies at domestic industry jobs because, in essence, in the short-run, each good sold to a foreign distributor exporting their product into the U.S. takes away at least some value of a domestic equivalent product.

Additionally, balance of trade becomes an issue. If the U.S. could import 100% of everything it uses, at half the price at which it manufactures it locally, life would be grand for Americans living large on the Macy’s White Flower Day Half-Off Sale for about two quarters, or half a year. After that, our existing industries would essentially evaporate as meaningful economic entities, and with no revenues coming to them from sales, there would be little money to send across our borders to buy things like oil and Japanese trucks and wind-powered jetpacks.

Adding yet more complexity to the notion of protectionism, this black and white picture of importing and/or exporting 100% of any given good is usually incomplete. That is, Mercedes makes its engines in Germany, but stamps its bodies in the U.S., while using tires from Korea, France, and Japan. And windshield wipers and other accessories from other manufacturers in non-union red states in America. They’re all assembled in North Carolina. So how do you even begin to calculate what a Protectionist policy would do in this very cloudy, vague sense of who owns what and where, and how much protectionist policy would do to help or harm the global balance of power?

The broader notion here is that the world receives a “peace dividend” when companies are not at war in this unhealthy way. Consumers benefit when companies simply compete to deliver higher and higher quality product for incrementally better value to the end user. If Protectionism gets in the way of that liquid flow of Darwinian economic competition, it just adds friction where it isn’t needed.