In his book “Pop Internationalism”, Paul Krugman warns about the temptation that nationalist governments suffer from believing that protectionism, or any measure that puts the defense of national industries before the rest, serves to preserve employment. The Nobel Prize winner himself tells us that history is full of examples that demonstrate the opposite.
There is no doubt that economic nationalisms are attractive because they offer a false sense of economic security and present and future well-being. However, these only manage to turn economies into watertight compartments, allowing said security to only be available to lobbies that, with it, have free hands to extract rents in their favor.
Adam Smith dedicated a good part of his book “The Wealth of Nations” to developing the concept of the division of labor and its consequences. One of the most relevant derivatives of the division of labor is what we call a positive sum game. I convey this idea to my students in a simple way by giving them the following advice: when doing group work, each partner should dedicate themselves to the task in which they demonstrate greater skill. If they do it this way, and not dedicate each of their efforts to a part of the work that incorporates similar tasks, the benefits will be much greater. Ricardo’s comparative advantage tells us that even the least skilled will benefit thanks to the miracle of specialization. Thus, as the division of labor is more intense the greater the commercial freedom, markets that compete for their own and other consumers mean greater final profit.
This vision of international trade, however, may seem somewhat naive, since it is evident that between theory and practice there is a lot of space full of exceptions. There will always be losers. But, from the evidence, we know that despite these nuances to take into account, protectionism is bread for today (crumbs) and a lot of hunger for tomorrow.
There are very few known cases of countries that, having opened up to trade, have experienced a decline in their living standards. Much of the reduction in inequalities between countries in recent decades comes from the incorporation of Asian countries into international trade. Also Africans and some Latin Americans. Let’s think about the cases of China, India and Vietnam more recently, or South Korea and Taiwan in earlier times. Even in Spain in the 1950s and 1960s, Italy before that, and Japan through its post-Meiji Restoration development.
Many will say that a good part of these success stories did not come without a public commitment to favor the birth and development of sectors that were later released to international trade in which they were already mature. And even with a strong nationalist component. TRUE. This is why the thesis of international trade without barriers as a model has major exceptions. Precisely one of them is the support for nascent industries, sometimes necessary to allow them to acquire the necessary muscle and scale before being released to compete in a very demanding ecosystem. And supporting these nascent industries in a very competitive environment may make sense, precisely so that they achieve such specialization and efficiency. But one very thing
It is different to back down, especially to protect mature industries affected by international competition. Believing that preventing imports of goods and services from these industries will benefit the country is so absurd that it does not stand up to even the slightest empirical evidence.
In Europe, for some time now, winds have been circulating that bring us these proposals as a reaction to a European Union that has advanced in these decades towards integration and the freedom of movement of goods and services, as well as capital. Quite a few candidates for parliament support protection thesis, especially in sectors whose marginal gain is lower given their maturity. However, these proposals, which come from parties that espouse the same thesis to gain the favor of voters, are intrinsically contradictory when they are defended under the same international umbrella. Thus, these nationalist policies promoted by similar parties in different countries of the same union can only collide head-on, which turns supposed partners in the campaign into potential enemies in a hypothetical world where their proposals could be put into practice.
And, in the same way that international trade is a positive-sum game, with its winners and losers, restricted trade is a negative-sum game. He seeks to impoverish his neighbor, finding his own. Just as my students gain efficiency if each one dedicates themselves to a specific task within a common task, the result will not be better if each one decides to do the work separately. The “sum” of these four jobs will never have the same qualities as a job that is efficiently organized and put into practice.
So, if the nuances and “buts” to international trade and its freedom are relevant – as I have mentioned, there are losers in globalization – let’s not even imagine what they will be like when we reduce the size of the markets. In that case, not only will there be equal winners and losers, but they will be on a pie that will be smaller. In a context of commercial freedom, the losers have more resources to try to redirect their skills towards what the market demands. However, in a more constrained world, where resources dwindle, the ability to prevent losers from not receiving aid languishes.
In short, proposals such as those we have heard these days of support for certain sectors and their companies and workers that go through the limitation of imports only result in a loss of well-being, especially for those who benefit from free trade, such as the consumers. The reduction in freedom of trade raises the income of the protected industry at the cost of a higher price to be paid by its customers. The pagans are us, the ones who buy those products. As Keynes argued, although protectionism may be justified in certain circumstances and levels, in the long term it is contradictory to growth, development and well-being.
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