Karl Marx was not particularly famous for his advocacy of economic freedom. Yet, even he understood the evils of protectionism. Marx, as quoted by his sidekick Frederick Engels, gave probably my favourite definition of protectionism.
The system of protection was an artificial means of manufacturing manufacturers, of expropriating independent labourers, of capitalising the national means of production and subsistence, and of forcibly abbreviating the transition from the medieval to the modern mode of production.
Wow. So much wisdom packed into one sentence, and that too, from Marx. Let us go through the sentence bit by bit to understand its meaning.
Artificially manufacturing manufacturers
This is an obvious one. We need only look at Donald Trump, and the way he seeks to create jobs in the United States. By imposing tariffs on imported goods, Trump wants to encourage their production in America by making it relatively cheaper. This is what Marx meant by “manufacturing manufacturers”.
Expropriating independent labourers
Protectionism, as Marx observed, hurts the working class. Apart from the corporations who are protected against foreign competition, and their employees, everybody loses. For example, when Obama increased tariffs on tire imports, it increased the incomes of workers in that industry by less than $48 million. But it forced everyone else to spend $1.1 billion more on tires.
Just imagine the impact of Trump imposing across the board tariffs on all products. The cost of living for the average working class American would shoot up by an order of magnitude. And that is not even considering the impact of retaliatory tariffs.
Capitalising means of production and abbreviating the transition to modern mode of production, said Marx, is another function of protection. When you make it expensive to employ people by way of minimum wage and other labour regulations, you make it relatively more profitable to use machines. Economist Narendra Jadhav tracks how manufacturing in India has become more capital intensive over the years. Tariffs on imported goods did not help create jobs in the manufacturing sector. Even though India has armies of young, unemployed people it is cheaper to use machines rather than comply with the nearly 250 different labour laws (central and state combined).
Just because Trump imposes a tariff on Chinese goods does not mean that jobs will “come back” to the US. Even if there were no minimum wage, wages in the US are naturally higher than wages in less developed countries, meaning it would still be cheaper to use robots.
The Benefits of Free Trade
Apart from more and better quality goods that would be available more cheaply, as Don Boudreaux points out ever so often, there is another thing to be gained from free trade. Marx said it would lead to the “emancipation of the proletarians”. I turn once again to India as an example. Where earlier the rigid caste system forced so called “untouchables” into demeaning jobs (such as cleaning sewers), in the past 25 years some of them have become millionaires as a result of India being opened up to trade.
It is a shame, that even when virtually all intellectuals, from Hayek and Milton Friedman to Karl Marx and Keynes, have agreed that free trade is the best, there are people who would adopt a protectionist approach.