“It’s an interesting thing, in times of war, we blockade our enemies from getting goods from us. In times of peace, we do to ourselves by tariffs what we do to our enemy in times of war.”
By: Matthew Marcone
The Trump Administration’s decision to slap a 20 per cent tariff on Canadian Lumber has me thinking about the problems with protectionism.
Protectionism is the idea and practice of protecting a country’s domestic industry by taxing products from foreign competition. While it’s the U.S. being the major culprit today, there’s no shortage of people in Canada and this region who believe in the idea at some level.
There’s an almost tribal-like component to this debate – the opposing position being free trade – where people almost instinctively favour any policy that is perceived to benefit their neighbour.
That’s how tariffs and protectionism are sold to the public; that we need to protect domestic jobs and our own economy first by taxing imports, thereby placing limits on the number of foreign goods brought in.
Unfortunately, the truth about protectionism is that it benefits only a few domestic companies at the expense of everyone else, who become poorer as a result of a lower supply and higher prices.
Henry George, author of Progress and Poverty, a best seller in the 1890’s summarized it this way: “It’s an interesting thing, in times of war, we blockade our enemies from getting goods from us. In times of peace, we do to ourselves by tariffs what we do to our enemy in times of war.”
Protectionism is a self-inflicted wound. It forces the domestic population to pay higher prices, have fewer affordable goods and services available on the market, while also tying up labour and resources that would otherwise be adapting to other industries.
Falling prices as a result of free trade create wealth for the average person.
Here’s where the confusion sets in. When most people think of free trade, they’ll think of NAFTA or other international agreements and point out some of their major faults.
And they aren’t wrong.
The problem is that NAFTA, while called free trade, is anything but. It’s one of the oldest tricks in the ol’ political handbook.
Free trade is defined as, “international trade left to its natural course without tariffs, quotas, or other restrictions.”
And yet NAFTA is a 2,000 page document, broken into eight sections and 22 chapters of rules and regulations governing of a wide ranging of industry.
Hardly free trade.
It’s also no small matter that these agreements are heavily lobbied for by large corporations, looking to impose restrictions on their competition.
Protectionist legislation almost always benefits a small group at the expense of a very large group. Unfortunately the smaller group almost always speaks with a bigger voice politically, which in the softwood lumber dispute is the US Lumber Coalition.
It’s also part of Trump’s policy to encourage domestic production by imposing tariffs on other countries, of which Canada is not the only one.
The trade war is just getting started.