Why so little demand for protectionism?

by on April 29, 2013 at 10:59 am in Economics, Law, Political Science | Permalink

Paul Krugman asks a very good question, namely why the political pressures for protectionism in the midst of recessions and depressions have been so weak.  While I do not disagree with his points (which cite institutions such as the WTO and EU), I am surprised by what he leaves out.  Here is a summary of Spence and Hlatshwayo on U.S. labor markets:

Looking back on the period from 1990 to 2008, the co-authors found that 97 percent of the 27.3 million U.S. jobs created were in the non-tradable sector. (The five largest non-tradable sectors, mentioned above, contributed 65 percent of the 1990-2008 jobs growth.) “The employment creation occurred mostly in non-tradable sectors — where we don’t have international competition,” Spence said.

In other words, with more jobs in the service sector, we are practicing increased “protectionism by any other name,” often with the law and with regulation but in many cases cultural barriers and lack of trade networks will suffice.  Trade costs for many services are in any case high and thus the constituency for protectionism or further protectionism is not quite there.  The workers who might have supported tariff-based or quota-based protectionism thirty-five years ago already have lost their jobs to foreign trade and they or their descendents have moved to more heavily protected service sectors.  As we should recall from the literature on the gravity equation, explicit tariffs are only a small part of the actual barriers to trade.

A second issue is the where the actual burden of foreign competition is falling, given a much higher degree of globalization.  The Mexicans are worried about Chinese competition, but they are not mainly worried about Chinese competition pulling Mexican consumers away from Mexican products (chili peppers are one exception here).  Mostly they are worried that Chinese competition has taken away many of Mexico’s export markets elsewhere, and putting tariffs on Chinese goods coming into Mexico won’t stop that.

JWatts April 29, 2013 at 11:08 am

I’m missing the logic in your statements.

Looking back on the period from 1990 to 2008, the co-authors found that 97 percent of the 27.3 million U.S. jobs created were in the non-tradable sector.

Followed up by your statement:
In other words, we are practicing “protectionism by any other name,”

If we were practicing protectionism wouldn’t you expect job growth in the ‘tradeable’, but ‘protected’ sectors. It looks to me that very little growth (3%) in the tradeable sector is evidence that we are not protecting those sectors. Instead, it looks like growth is concentrating in areas where we have an absolute advantage. Which is what you would expect considering we have low barriers to trade and we are a high wage country.

Tyler Cowen April 29, 2013 at 11:17 am

Protectionism in the service sector, not manufacturing, where employment is now quite low.

bjssp April 29, 2013 at 1:07 pm

Which parts of the service sector?

BC April 29, 2013 at 1:47 pm

Could you please provide more clarification about what you would define as “protectionism by any other name” and explain how simply having a comparative advantage in a particular service sector job would not fall under that definition? For example, if it is easier for an American than a foreigner to overcome a “cultural barrier” like being able to speak English, is that an example of “protectionism” or just a comparative (and absolute) advantage?

uma April 29, 2013 at 6:18 pm

Hostile Jewish elite want free trade, open borders in Europe/America, whereas patriotic White people want protectionism. Said Karl Marx in 1848, “…the protective system of our day is conservative, while the free trade system is destructive. It breaks up old nationalities and pushes the antagonism of the proletariat and the bourgeoisie to the extreme point. In a word, the free trade system hastens the social revolution. It is in this revolutionary sense alone, gentlemen, that I vote in favor of free trade.”

There is so little “demand” for protectionism because all the critical centers of power to drive a debate are controlled by hostile Jewish elite – media/academia/banking. Anyone who lives in real world knows that the numbers on unemployment, wages, inflation, standard of living are all cooked up. White people have become so passive in the face of mass poverty due to individualism.

Evolutionary Psychology has shed much light on individualism. here is a passage: …Congruent with the relationship between individualism and low fertility, Garnsey and Saller (1987, 143–144; see also Hopkins 1983, 79–81) suggest that “it seems likely that many Romans came to take a more individualistic view of life, giving correspondingly less effort to ensuring the success of family and lineage.” In individualistic societies, sexual pleasure tends to become a goal in itself, removed from its reproductive consequences, while Judaism remained committed to fertility and high-investment parenting as religious commandments…”

Individualism suppresses fertility. Desire to reproduce is what drives wealth accumulation, economic success. no fertility breeds no hunger for wealth, leading to passive society, and mass poverty. Collectivist societies like Jews, Chinese, Japanese that aggressively advance their fertility, their families, their homelands, their interests, win.

Doug April 30, 2013 at 3:54 am

“There is so little “demand” for protectionism because all the critical centers of power to drive a debate are controlled by hostile Jewish elite – media/academia/banking.”

Obviously the Elders of Zion are the main reason protectionism isn’t popular, otherwise the good gentiles would protect their own people with job-creating trade barriers. Which is why of course the countries with the lowest average tariff rates in the world: Hong Kong, Singapore, Switzerland, Georgia, Macau, Norway, and Estonia are known for their massive Jewish populations. Also which is why Canada has half the tariff rate of the United States. Clearly all the Jews in Toronto and Calgary have pushed Canadian trade barriers way down, whereas New York and Miami are way way less Jewish.

http://data.worldbank.org/indicator/TM.TAX.MRCH.WM.AR.ZS?order=wbapi_data_value_2011+wbapi_data_value&sort=asc

uma April 30, 2013 at 4:56 am

why do you talk nonsense? You dont know how these societies operate. you fool.

HK, Macao are at least 95% Chinese. They use informal ethnic networking to control trade, they dont need 50,000 page tariff legalism. Same with Singapore, where Lee family dominates everything – banking, sovereign wealth fund, media, government. And Lee’s Hakka clan provides most judges, administrators, lawyers, businessmen.

Estonia has only 1.2 million people, a rapidly declining population. 1/10 the size of NY urban area. Georgia has 4 million people, a clannish society like East Asians. 5 families informally control everything. It doesnt need legal tariffs.

Switzerland has only 7 million people, banking dominates economy. It can do well without tariffs. Norway is only 5 million people, rapidly declining due to free trade, mass 3rd world invasion, rapes, crimes, human & drug trafficking.

In Canada, Chinese/Punjabis own half the economy, and Jews the other half. high unemployment, declining wages, cooked up govt stats.

World Bank is a crime syndicate whose Neocon President Wolfowitz lied about Iraq war, and gave illegal favors to his muslim mistress. So Your World Bank data is fraud. You are a fraud.

mulp April 29, 2013 at 6:48 pm

What we seem to have is voters voting to protect the corporation, by voting for attacks on unions and protection for employers slashing wages and hours of service workers, because in a global market, mowing lawns in Chicago is readily outsourced to Africa, so service workers want to protect their jobs by ensuring no unions get all service workers to go on strike for more job security and higher wages.

Voters know that consumers never work and are given money from government, and workers give all their money to government, so lower wages will not reduce demand for goods and services, but it will reduce government revenue and starve the beat of government so government will get out of the way and give consumers more money to spend.

Sorry, but the bizarre logic of business and most economists as expressed in their rhetoric makes me reply to more of the same gobbledygook of “protectionism by any other name,” – if you had just stuck with the original quote rather than paraphrasing “slavery by any other name”, I wouldn’t have been driven insane.

mw April 29, 2013 at 11:11 am

With this terminology, all the calls for China to transition from a “capital-intensive” to “labor-intensive” economy via consumption and service sector are calls for increased protectionism…that doesn’t sound quite right.

Frederic Mari April 29, 2013 at 12:01 pm

That.

I haven’t yet written a piece on trade & immigration myself, mostly because, as a liberal, I am uncomfortable with my own conclusions i.e. we might want to close/restrict our developed markets from some of the emerging mercantilists.

The thing isn’t that we have a service-based economy and that many services are inherently harder to trade across vast distances. The thing is that we have lost a big chunk of our industrial base to people practicing a deliberately mercantlist strategy. I am pretty sure that taxing products with a high % of their components ‘made in china’ would meaningfully alter the equation – either by allowing us to rebuild an industrial base or by at least taxing the guys who took it from us.

Would it be worth it? I think so but, as I said, this conclusion does make the liberal in me feel inherently uncomfortable.

Noah Yetter April 29, 2013 at 12:35 pm

The answer to other nations’ mercantilism is to practice mercantilism ourselves? Are you listening to yourself?

Misguided mercantilist policies of other nations make those nations worse off and all their trading partners better off. This is REALLY BASIC stuff here.

uffy April 29, 2013 at 1:46 pm

…in the long run unless there are various path dependencies, knock-on effects, hysteresis, “something” we don’t understand negatively impacting the non-mercantilists or impacting positively the mercantilists or both.

Frederic Mari April 29, 2013 at 4:07 pm

… what uffy said. Besides the great Ricardo himself thought free trade didn’t work in a world of freely moving capital…

And cheap goods from China are great… unless you lost your job because of them. Then, you cannot afford them, however cheap they might be…

Frederic Mari April 29, 2013 at 4:09 pm

Also: this is a negotiation. They, say,raise their salaries or safety net or currency and we don’t close our borders. They don’t, we go play home… Guess what they would do? They need us more than we need them…

Cliff April 29, 2013 at 4:15 pm

It seems like you are writing your blog comments living in a cave and completely unaware of what is happening in the real world. A) Chinese wages are skyrocketing. We don’t need to negotiate against our consumers on behalf of Chinese workers. B) Chinese goods are inputs in a huge number of value-added U.S. enterprises and raising prices on inputs is not going to do our economy any favors. I work with a lot of product design businesses and entrepreneurs and if they are forced to manufacture in the U.S. their businesses will simply fail and shut down. C) Imports fro China continue to boom and our economy continues to grow. I see no evidence that trade from China is reducing living standards in the U.S.

Mike April 29, 2013 at 5:58 pm

Cliff, what was that old quote… It is difficult to convince a man of something that his salary depends on him not believing…?

Those that rely on Chinese labor will of course insist that it hasn’t led to a decrease in American living standards, but what you really mean to say is that it hasn’t decreased your living standards.

The Anti-Gnostc April 30, 2013 at 7:34 am

Your comment demonstrates how the Left has been quietly tiptoeing away from the working class and toward racial spoils politics. An old-style Democrat or Laborite (back when Labor actually meant “Labor”) would have no such hesitation.

It’s apparently galling to libertarians to see Americans actually applying comparative advantage. No authentic (and cheaper!) Colombian baristas to serve them their imported coffee! There oughta be a law.

B.B. April 29, 2013 at 11:12 am

I would add that the high price of oil is an effective barrier to trade by raising transportation costs of ships from across the sea. Oil has done the dirty work of making trade more expensive.

john personna April 29, 2013 at 11:26 am

I have felt that small, uniform, tariffs are necessary to balance the tax burden on US business. That is to say to spread the tax burden to foreign producers. When I first suggested this, in answer to “free trade” arguments, I got “protectionism!” as the push-back. Politically, say from 2000 to 2010, any tariff above “free” was “protectionist.” And of course “tariffs caused the great depression.” I blame strong memes.

derek April 29, 2013 at 2:35 pm

What this tells me is not the need for tax burdens to make imports more expensive, which would hurt consumers and benefit the wealthy. What this says is that the only place the US can compete is where there is no competition. The push for tariffs are a way to avoid the ugly questions about why it is uncompetitive. Essentially the non-tradeable sectors would lose, as much of what they do is add costs without equal benefit, and the tradeable sectors would gain.

mulp April 29, 2013 at 7:26 pm

Well that is simple – we just implement the tariff imposed on all non-tariffed goods shipped to the EU, Asia, et al: the 15% VAT, and restructure US corporate tax from a 35% profit tax to a 15% profit tax plus a 15% VAT – then the US corporate taxation will be the same or lower than in the rest of the world because all the tax loopholes in the current 35% tax rate code can be retained.

The thing we have now is there is no tariff between Japan and the EU generally because both have 15% profit and 15% VAT, so an export to the other is a rebate of the VAT offset by imposing the VAT on import. A US corporation pays the 15% VAT without the offsetting rebate from the US governments. The US then helps pay to train and pay health care for EU and Japan and Korea workers, while their exports to the US contribute nothing to train US workers or pay their health care.

uma April 29, 2013 at 7:56 pm

more nonsensical economism. Society comes before economics.

Japan is an ethnostate with almost 100% population yellow, 99% Japanese. Japanese are advancing their interests, their families, their heritage, their homeland. Japanese decide policies based on what is good for the Japanese?

Just as Jews, Chinese, and 90% other non-whites. Whereas, gullible white fools allow insane ideologies to drive them off the cliff. “Is it good for libertaranism?”, “is it good for open borders and free trade?”.

The day White people stop cuckoldry and ask themselves, “What is good for white people?” will be the day Europe/America will start their recovery from wars, debt, destruction and poverty.

kebko April 29, 2013 at 9:57 pm

This comment seems to reflect a 20 year avoidance of bayesian updating.

Harold Lloyd April 29, 2013 at 10:21 pm

The atomized society has no purpose, no goal but petty individualistic ones. Only when power is consolidated can the jungle that surrounds us be shorn.

Bill April 29, 2013 at 11:27 am

We have protectionism: military spending, tenured faculty.

kiwi dave April 29, 2013 at 12:09 pm

I suspect that a lot of the impetus that in a previous era (when a lot more of the work force were in the manufacturing sector) would have gone towards protectionism now goes towards opposition towards immigration. Imported goods can’t displace a non-tradeable sector worker, but migrants can.

john pesonna April 29, 2013 at 1:03 pm

But that’s weird, right? The free trade meme is so strong that tradeable jobs are written off. (Many of have suggested that whatever your trade/immigration positions, they should be consistent.)

Peter Schaeffer April 29, 2013 at 4:36 pm

“Many of have suggested that whatever your trade/immigration positions, they should be consistent.”

Some truth in that. However, imported toasters don’t consume handouts, undermine public education, demand racial quotas, impose linguistic divisions, bring a 50%+ illegitimacy rate, raise crime rates (a lot), make housing unaffordable, increase gridlock, consume scarce natural resources, etc.

People are not goods. Its an easy point (we fought a Civil War over this very subject). However, the market mania (and dominant cosmopolitan elitism) of our time has obscured this lesson. In the words of the late Swiss writer Max Frisch:

”We wanted workers, we got people.”

Cliff April 29, 2013 at 4:16 pm

Goods can’t vote

dave April 29, 2013 at 12:12 pm

Probably because more people work for the government and as baristas and in other service sector jobs, and more people are unemployed. The unemployed whom you’d think would express more support for protectionism don’t because they’re ignorant, bought off by the government with welfare, and because people generally aren’t allowed to think about protectionism – it’s considered gauche like being against immigration.

Noah Yetter April 29, 2013 at 12:38 pm

Don’t forget the “service sector” includes doctors, lawyers, architects, software engineers, etc etc etc. It’s not just baristas and dry cleaners.

bjssp April 29, 2013 at 1:10 pm

This is where I am confused. Why would be a barrista really be against trade? Forgive me for being banal, but there’s no way to outsource a waiter or a barista. (As opposed to automating their work, I guess.)

8 April 29, 2013 at 12:19 pm

The political elite are no longer relying on the public for power. There is essentially a one-party state ruling across the West. He might as well ask why there’s no push to limit legal immigration, when a national referendum might well lead to major restrictions on legal immigration and the deportation of illegal immigrants.

Greece, Hungary and Russia are the future. There will be no smooth transition, suddenly people will get fed up with the current elites and they will turn to a change agent who will be as day is to night. It will probably happen when tens of millions of these “protected” service workers lose their jobs, as happened in Greece.

j r April 29, 2013 at 1:19 pm

I don’t know that there has been little demand for protectionism. There hasn’t been a Smoot-Hawley tariff, but there have been plenty of one-off protectionist measures: the ban on Mexican trucks coming across the border, the tariff against Chinese tires, the six years it took for the latest round of FTAs to be approved…

Brett April 29, 2013 at 1:43 pm

There’s been some pushback against the expansion of high tech visas, but the broader form of service sector protectionism has been the explosion in occupational licensing. In fact, I wonder if that’s also drained off a lot of the support for unionization.

mike` April 29, 2013 at 1:58 pm

My impression is that somehow the American public has been convinced that our current economic malaise is cyclical rather than structural. Despite everyone explicitly acknowledging that the 2000-2007 economy was a “bubble”, there is a vague but widespread notion that somehow we will return to it once “the recession” is over. But, obviously, if the previous economy was a “bubble” then we can’t “go back” to it without reinflating the bubble.

So we have a population that thinks we are in the midst of “the recession” instead of in a normal period. And politicians and journalist/economist hacks have been trying to sell their desired policies as a way to “jump-start” our economy, as if all we need is a little push to get out of “the recession” and things will go back to the way they were before. The reality is that it will take NEW growth to get from our current normal period to a period where the economy at the level where it was before but still normal (i.e. not a bubble).

I can think of a lot of reasons why people would rather think that we are in “the recession” and we can just “recover” back to good old times, but I can’t see how any rational person can believe that while also acknowledging that the “good old times” were the result of an artificial bubble. Am I the crazy one?

mike April 29, 2013 at 2:00 pm

Sorry – my intent with respect to the original topic was to say that the reason there is little demand for protectionism is that people are convinced that our economic malaise is cyclical rather than structural. Therefore we don’t need any substantive policy changes to get real growth, just fiscal/monetary policies to “jump start” the “recovery”.

Peter Schaeffer April 29, 2013 at 4:28 pm

+1

Brian Donohue April 29, 2013 at 3:13 pm

Yeah, well, I just calculated that we’re 20% shy of ‘potential GDP’, so there.

Michael April 29, 2013 at 2:10 pm

In a service-based economy where you need people physically in the country to do the work, immigration restriction is a form of trade barrier. You can’t import haircuts from barbers in other countries, but you can import the barbers themselves to provide haircuts here. Limiting the importation of foreign workers is akin to limiting the importation of foreign goods.

While there has been talk of immigration reform, I think there’s still quite a bit of anti-immigrant sentiment in the US. To me, that’s where we’re seeing the protectionism. Due to the fact that the manufacturing jobs have already mostly left and we’re now talking more about service jobs, we talk in terms of importing labor rather than goods.

save_the_rustbelt April 29, 2013 at 3:32 pm

Blue collar America has been beaten down, and is now being abandoned by unions.

Next target, crush as much of the middle class as possible and redistribute wealth upwards.

At least these goals are bipartisan.

Cliff April 29, 2013 at 4:18 pm

Currently, the middle class is being “Crushed” upwards into the upper-middle and upper classes

Peter Schaeffer April 29, 2013 at 4:38 pm

Real life for the factually challenged.

Median income is falling, not rising.

TR W April 29, 2013 at 5:15 pm

Very true.

Norman Pfyster April 29, 2013 at 4:32 pm

Political pressue is weak other than for restrictions on immigration, a form of protectionism that enjoys broad (if not necessarily majority) support.

Peter Schaeffer April 29, 2013 at 4:57 pm

There are many reasons for the lack of significant protectionism so far. However, a big one is the shift in the corporate community. Before 1980, big business and the unions were protectionist to a significant degree. Then corporate America discovered outsourcing. Of course, the real story is more complex, took longer, and has many details. However, the bottom line is clear. The lack of any protectionist impulse so far is partially a consequence of a shift in how corporate America views trade. Imports were once viewed as a threat. Now they are seen as a way of moving production offshore while still selling to American consumers.

Let me quote from Stephen Roach (former Chief Economist for Morgan Stanley and Asian director for Morgan Stanley).

“There can be no mistaking the intensity of the angst bearing down on the American workforce. I suspect something else may be at work here. As I have noted previously, at present, there is an extraordinary disparity between the capital and labor shares of US national income (see my 8 January dispatch, “The Power Shift”). The profits share currently stands at a 50-year high of 12.4%, whereas the labor compensation is just 56.3% — back to levels last seen on a sustained basis in the late 1960s. It turns out that’s a very different juxtaposition of economic power relative to that which prevailed during the Japan bashing of the late 1980s. Back then, the shares of both capital and labor were under pressure: The profits share of about 7% was well below the 10% reading hit a decade earlier whereas the labor compensation share of about 58% was down markedly from the 60% reading hit in the early 1980s.

In my view, this underscores a key element of tension in America’s current backlash against globalization that was not evident in the late 1980s. Today, the pressures are being borne disproportionately by labor, whereas 20 years ago, capital and labor were in the struggle together. In the late 1980s, many of the once proud icons of Corporate America were fighting for competitive survival at the same time that US workers were feeling the heat of global competition. The pain was, in effect, balanced. Today, US companies, as seen through the lens of corporate profitability, are thriving as never before while the American workforce is increasingly isolated in its competitive squeeze. In essence, capital and labor are working very much at cross purposes in the current climate, whereas back in the late 1980s they were both in the same boat.”

Harold Lloyd April 29, 2013 at 10:42 pm

The struggle between the people and the hatred amongst them is being nurtured by very specific interested parties. It is a small, rootless, international clique that is turning us against each other. They do not want peace. It is the people who are at home both nowhere and everywhere, who do not have anywhere a soil on which they have grown up, rather who live in Berlin today, Brussels tomorrow, Paris the day after that and then again in Prague or Vienna or London. They feel at home everywhere. They are the only ones who can be addressed as international elements, because they conduct their business everywhere, but we can not follow them. We are bounded to our soil, bounded to our home, bounded to the possibilities of life that the state, the nation, offers.

The nature of power is consolidation, unity. Not diversity. If the American worker wants his dignity back we must come together for it. Neither party has our interests in mind. The more you know.

Peter Schaeffer April 30, 2013 at 1:11 am

Short version. The Party of Davos. Will the Party of Davos prevail? They have done pretty well so far. However, their inability to turn around Europe and the United States does not augur well for them. The Euro was a core Davos project. Failure is a kind description of the outcome.

Frederick Harrison April 30, 2013 at 10:13 am

Industrial production in suffering, consumption is down and no one has money. I think that the protectionism is not the right way! Our administrators really should listen to specialists in the economic crisis who are able to face the numerous problems due to the crisis, like the specialists from the Orlando Bisegna Index who have solved problems of unemployment, family purchasing power, public finances for counties in financial distress, avoiding further debt and default.

Comments on this entry are closed.

Previous post:

Next post: