Individuals, not governments, have a comparative advantage in…

With the exception of optimal tariff theory, all the complex arguments for using protectionism to enrich the people of the motherland boil down to one claim. The basic claim is that government officials can design and enforce protective tariffs and subsidies that make home country producers achieve “better” comparative advantages than those producers would have achieved without protectionism. This argument is not illogical.

Large numbers of workers may, for example, have a comparative advantage in performing janitorial services and a comparative disadvantage in producing microchips. But if the government imposes a high enough protective tariff on imported microchips, the price of domestically made microchips can rise enough to make it profitable for local microchip producers to remove these workers from their jobs as janitors and hire them to produce the microchips. No longer cleaning urinals and toilets, but instead making microchips, these workers become skilled at performing more productive (and more valuable and higher paying) tasks than they once performed as janitors.

These protective tariffs also create a desirable comparative advantage at the domestic level companies Microchip production. Without the tariffs, these companies would not have survived as producers of microchips, or they would only survive by producing less microchips. One reason is that, in the absence of tariffs, the supply of workers skilled enough to be used in the production of chips was minuscule.

Protective tariffs can already Maybe Engineer into being desirable comparative advantages that would not otherwise appear in the home country. But this possibility is a flimsy stake upon which the case for protectionism can be built.

First, it is not inevitable that firms that “succeed” (because they are shielded by high tariffs from competition) will become strong, smart, and more productive. It is likely that these companies will not only continue to rely on tariffs for their survival, but will become so more depend on tariffs.

Which of the following situations do you find most plausible?

Situation A: To inspire my favorite student to excel in class, I promise him not only that I will grade his exams and papers more leniently than I do other students’ work, but that I will assign him only high marks regardless of his performance. This student, grateful for the special privilege bestowed on him, puts his nose to the academic grindstone in a way he would not otherwise have done. Study hard and diligently. Shielded from failure by his own distinction, by the end of the semester, the academic diligence which “Protect Me” inspired in this student has transformed him into a star pupil. He no longer needs special protection from me to excel in the classroom.

Situation B: To inspire my favorite student to excel in class, I promise him not only that I will mark his exams and papers more leniently than I do other students’ work, but that I will assign him only high marks regardless of his performance. This student, grateful for the special privilege he has been given, slacks off in class. His studies become sloppy, and his writing uninspired and sloppy. His overall performance in class is dismal. Protected by his own privilege from failure, by the end of the semester, this student’s only hope of “passing” the class was to make good on my promise to continue assigning grades well above those he already had.

My confident guess is that, like me, the situation you find most plausible is B. In fact, situation A, while imaginable, is ridiculous in practice. (If situation A were realistic, schools would have stopped evaluating student performance long ago by administering tests. Instead, schools would have entrusted students with high grades unconditionally.)

Tariff protection is similar to Mode B, although it is frequently sold as closer to Status A. Inductions from entrepreneurs, firms, and employees are less likely to spur the diligent effort required to develop skills to excel economically, than they are to guarantee indulgence. Grades to elicit students’ effort to excel academically.

The example of education helps reveal a second flaw in the argument that customs protection is necessary for the home country to develop better comparative advantages: each student seeks to improve his own comparative advantage.

When I was a college student, I worked in a supermarket packing groceries. This low value skill was the comparative advantage. But I didn’t want to spend the rest of my career packing groceries. So I stayed in college, studied hard, and consciously changed my comparative advantage to that of a grocer. To bring about this improvement in my comparative advantage, I did not seek the protection afforded by the government. The government did not prevent artificially trained economists from teaching, lecturing, and researching in order to make it easier for me to become an economist and earn my living in that profession. (Had the government done that, I am sure I would have become a poorer economist than I actually managed to become.) Through college, I continued to work a steady series of low-value-added jobs where I simultaneously sought to compare my best advantages.

Reality is teeming with individuals and companies striving to improve their comparative advantages. These individuals and companies do not have government protection in preferred occupations and market niches, however Because There is no such protection. Every day, workers strive to improve their skills. Every day, companies aim to increase their efficiency in supplying certain goods or services. Every day, improvements occur in comparative features. One strong piece of evidence supporting this claim is the fact that Americans’ real incomes have risen steadily over decades and continue to rise.

However, almost none of this comparative advantage improvement takes place behind firewalls or other special privileges set up by the government. The steady improvement in comparative advantage results largely from individual initiative guided by market prices and wages. Therefore, there is no reasonable argument that for us Americans to improve our comparative advantages we need a government to protect any of us from foreign competition.

Donald J Boudreau

Donald J Boudreau

Donald J. Boudreau is a senior fellow at the American Institute for Economic Research and with the FA Hayek Program for Advanced Study in Philosophy, Politics, and Economics at George Mason University’s Mercatus Center. Member of the Mercatus Center Board of Directors; and former Professor of Economics and Chair of the Department of Economics at George Mason University. He is the author of books Basic Hayek, GlobalizationAnd Hypocrites are half witsHis articles appear in publications such as Wall Street Journal, New York TimesAnd US News & World Report In addition to many scientific journals. He writes a blog called Cafe Hayek and a regular column on economics for Pittsburgh Tribune Review. Boudreau holds a Ph.D. in economics from Auburn University and a law degree from the University of Virginia.

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