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A hypothetical example: you are the Supreme Leader of Slevobistan, and you want to make your domestic widget industry as strong as possible. Your rival nation F

A hypothetical example: you are the Supreme Leader of Slevobistan, and you want to make your domestic widget industry as strong as possible. Your rival nation Flerovia has a well-developed industry making low cost, high quality widgets with economies of scale. Case A: Slevobistan is starting from scratch, has no domestic widget production whatsoever. In this case, if you fully open your market up to Flerovia, you will never get any on-shore widget industry! Startup domestic producers will be out-competed by the experienced Flerovian widget empires. Protectionist policies will make it harder for you to get cheap high-quality widgets in the short term, but they are necessary to build up your widget industry in the long term. Case B: Slevobistan already has an advanced widget industry, and you want to preserve it. In this case, protectionist policies, by insulating your industry from competition, could allow it to fall behind and decline. Free trade will ensure continued competition, pushing your widget industry to innovate and improve. As for empirical evidence, the historical record shows many examples of countries using protectionism to get ahead. For example USA (Civil War was in part over protectionism vs free trade, protectionist Northern industry won), Asian tigers, China…

whatshisface 4y ago
>and you want to make your domestic widget industry as strong as possible. You've build in your whole sequence of decisions already when you got to that point. Why do you want to make your domestic widget industry as strong as possible, even if that comes at the expense of the standard of living of your people along with the strength of other industries?
- Georgelemental 4y ago
  Possible reasons (non-exhaustive): - Flerovia is a rival, and diplomatic relations are rocky. They could cut off your critical widget supply, or raise the price, at any time. You want protection against this scenario. - Slebovistan is a poor and undeveloped country. All your domestic manufacturing industries are terrible compared to rivals. If you don't build up at least a few of them, you will remain poor and undeveloped forever. - Scientists believe that with sufficent R&D, they will be able to create new widget technology called "blidgets" that will revolutionize the world economy. Whoever gets there first is guaranteed endless riches. You want to win the blidget race. - etc…
olalonde 4y ago
Yes, I know what protectionism is and I know what the stated intentions behind it are. The problem is that it doesn't work overall. Yes, you can maybe "protect" an industry but at a greater cost than that of not protecting it. This can be reasoned from basic economic principles but there is also a lot of empirical evidence for it. The essential problem, and probably the reason why so many people fall for it, is that the cost of protectionism are hard to perceive and diffuse but its benefits are visible and concentrated. Its cost often manifest through consumers unknowingly paying higher prices or having a reduced standard of life. It's also difficult to know what productive economic activities might have been unlocked if workers of a protected industry had been working in more productive or innovative industries. On the other hand, the groups that benefit most from protectionism are concentrated and therefore have a greater ability to lobby for it. There's always a concentrated group of winners and a large, diffuse group of losers. To your "critical industries" argument, I have issue with that labeling. It seems a bit arbitrary and hard to justify. Aren't they all critical? The vast majority of countries seem to be doing fine without much of an industry that some other countries would consider "critical". The fact that there is such a great interdependence between our countries' economies is a good thing, not a bad one. Trading partners don't go to war with each other. Finally, the Asian tigers are some the freest economies in the world. Hong Kong does not have any import tariffs. China is still lagging behind but caught up a lot since the late 80s... when it largely liberalized its trade policies. Regarding the civil war, it's quite a leap to think that the North's protectionism had any hand in their victory.
- Georgelemental 4y ago
  I agree with you that permanent protectionism is usually a sign of regulatory capture and cronyism. The "default" should be to let free market competition do its work. Protectionist policies should ideally be temporary, targeted measures; for example, as a response to the policy of a rival, or to build up a specific industry. Again, there is no sacred doctrine here. Market competition usually produces some good incentives, but the invisible hand of the market is not the hand of God and from time to time it needs a nudge.

whatshisface 4y ago

>and you want to make your domestic widget industry as strong as possible. You've build in your whole sequence of decisions already when you got to that point. Why do you want to make your domestic widget industry as strong as possible, even if that comes at the expense of the standard of living of your people along with the strength of other industries?

Georgelemental 4y ago
Possible reasons (non-exhaustive): - Flerovia is a rival, and diplomatic relations are rocky. They could cut off your critical widget supply, or raise the price, at any time. You want protection against this scenario. - Slebovistan is a poor and undeveloped country. All your domestic manufacturing industries are terrible compared to rivals. If you don't build up at least a few of them, you will remain poor and undeveloped forever. - Scientists believe that with sufficent R&D, they will be able to create new widget technology called "blidgets" that will revolutionize the world economy. Whoever gets there first is guaranteed endless riches. You want to win the blidget race. - etc…

olalonde 4y ago

Yes, I know what protectionism is and I know what the stated intentions behind it are. The problem is that it doesn't work overall. Yes, you can maybe "protect" an industry but at a greater cost than that of not protecting it. This can be reasoned from basic economic principles but there is also a lot of empirical evidence for it. The essential problem, and probably the reason why so many people fall for it, is that the cost of protectionism are hard to perceive and diffuse but its benefits are visible and concentrated. Its cost often manifest through consumers unknowingly paying higher prices or having a reduced standard of life. It's also difficult to know what productive economic activities might have been unlocked if workers of a protected industry had been working in more productive or innovative industries. On the other hand, the groups that benefit most from protectionism are concentrated and therefore have a greater ability to lobby for it. There's always a concentrated group of winners and a large, diffuse group of losers. To your "critical industries" argument, I have issue with that labeling. It seems a bit arbitrary and hard to justify. Aren't they all critical? The vast majority of countries seem to be doing fine without much of an industry that some other countries would consider "critical". The fact that there is such a great interdependence between our countries' economies is a good thing, not a bad one. Trading partners don't go to war with each other. Finally, the Asian tigers are some the freest economies in the world. Hong Kong does not have any import tariffs. China is still lagging behind but caught up a lot since the late 80s... when it largely liberalized its trade policies. Regarding the civil war, it's quite a leap to think that the North's protectionism had any hand in their victory.

Georgelemental 4y ago
I agree with you that permanent protectionism is usually a sign of regulatory capture and cronyism. The "default" should be to let free market competition do its work. Protectionist policies should ideally be temporary, targeted measures; for example, as a response to the policy of a rival, or to build up a specific industry. Again, there is no sacred doctrine here. Market competition usually produces some good incentives, but the invisible hand of the market is not the hand of God and from time to time it needs a nudge.