Protectionism

First let's see what protectionism is. According to Mr. Webster it is the advocacy, system, or theory of protecting domestic producers by impeding or limiting, as by tariffs or quotas, the importation of foreign goods and services.

That sounds pretty good. It is something that will protect the jobs of our workers from goods that can be produced elsewhere and undercut the prices of our local goods. How? There are a couple of ways. The merchandise or commodity itself is in very large supply in another country and is mined or grown there very cheaply. Not much you can do about that. Or the labor costs of production are vastly less than our own workers and the product can be manufactured for less.

The average worker in the U.S. makes about $12.00 per hour while the workers in Mexico get $2.00 and the people in China average 60 cents per hour. How do you compete with them? Answer - you can't. So what do you do? If you are a shoe manufacturer in the U.S. you ask the federal government to levy a tariff (tax) on all imported shoes (or maybe just the kind you make). This sure helps that particular shoemaker who might have 300 employees making sneakers. Now the sneaker maker can keep his prices up and his workers working. That's good.

But wait a minute. There are millions of feet that need sneakers and that means millions of consumers are paying more for comparable quality sneakers. Is it fair to give special consideration to a very small group that automatically penalizes the mass of consumers?

Examine the definition of tariff again and think it through to the end. A tariff is a tax on consumers.

You are paying more for certain goods (and there are about 13,000 separate tariffs) than you should just for the benefit of a few manufacturers who cannot compete in the world market. Every country is not just a unit unto itself any more. We now have a global economy that allows specialization of products. If a company cannot compete it should not be in business and should not penalize the majority of its citizens for the benefit of a few. You, the consumer, should not have to pay more for tomatoes, brassieres and steel just so our politicians can get reelected. That is what is boils down to. Unions will promise to back certain candidates if they will vote for tariffs (tax increases) that protect incompetent manufacturers. The steel tariff is an excellent example. Bush put on a tariff when he could have given a tax break to help modernize that industry. In the long run our steel production will disappear because of continuing inefficiency. If we get into a trade war where one country trumps another with more and more tariffs it is a guaranteed loser for everyone. Visualize this as building a house of cards. You end up with a game of 52-pickup. It could go to the ultimate of deflation and depressions for all the countries of the world.

Protectionism in all of history has never worked.

Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know.

Copyright 2005

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