Protectionism

http://network.nationalpost.com/np/blogs/fullcomment/archive/2009/02/05/erin-weir-in-defence-of-buy-america.aspx

In reading Erin Weir’s piece defending the “Buy American” provision; it came as no surprise to me to read a union employed lobbyist advocating protectionism; a position supported by the NDP. As an honours graduate in Mathematical Economics I strongly disagreed with some of her conclusions. What is optimal for the United Steel Workers Union is not what is best for the larger economy.

Now I could write a lengthy diatribe renouncing her conclusions and applauding the benefits of free trade, but for the sake of journalistic expedience I will try to keep it as simple as possible. I will not condemn her for doing her job as a lobbyist, trying to extort the best possible deal for the people she is paid to represent. Steel is both a manufactured good and a staple input for several sectors of our economy. It is used extensively in the construction industry, in the automotive and aerospace industries, the production of heavy machinery, and so on and so forth.

When imports are capped or inhibited, that tightens supply and inflates the price above what it would be in a free market system. The net effect is a “deadweight loss” defined as a “loss of mutually beneficial transactions that are not transferred to another agent.” This says nothing of the geopolitical ramifications of upsetting our allies and trading partners, but rather illustrates the pain that will be felt domestically if our government gets into the business of supply and price manipulation.

Artificially inflate the price of steel and what would happen at General Motors? They would be forced to either cut costs (which often means layoffs) or to pass that price increase on to consumers. How would more expensive steel affect the epic works infrastructure projects that are supposed to stimulate our economy? This input price increase must be offset by either hiring fewer workers to build the projects, or the cost is passed on to already over taxed tax payers.

You keep coming back to the Smoot-Hawley Act as if to prove that stimulus and protectionism in tandem during a recession is the answer to all our problems. First, you can’t prove that a stimulus package would have averted the Great Depression. That is simply a theory. Second, I would challenge you to provide historical examples of where protectionism and stimulus cured a severe recession.

Your statement that “the world needs as much stimulus as it can get” is absolutely absurd! The risk of hyperinflation aside, beware the danger of erecting a firewall between China and North America. That will certainly anger a very powerful and unpredictable animal that happens to hold several trillion dollars in North American debt and assets. If backed into a corner, you can scarcely imagine the Hell they could unleash on Western currency and financial markets. That is one Pandora’s Box I would like to keep locked shut, please and thank you.

There are serious consequences to inhibiting less expensive steel imports from over seas with benefits only to a select few. You use clever semantics and distorted economic theory as a lobbyist looking at the Global Economy through the prism of orange coloured glasses. For centuries economists believed that if everyone did what was best for themselves, it would lead to the best outcome for the group. Then along came the beautiful mind of John Nash who proved that the best outcome comes from everyone doing what’s best for themselves AND the group. Doing what’s best for the United Steelworkers Union is not what is best for Canada.