The folly of protectionism

Years ago when I lived in Victoria and manned a small office, a salesman wandered in and tried to sell me his particular photocopier. He noted my current machine was Japanese but his was Canadian. So obviously, I should support Canadian jobs and lease his made-in-Canada brand instead.

Of course, he was unaware I once lived in Japan, so his pitch fell flat. I wanted my Japanese friends and their compatriots to be employed every bit as much as my fellow Canadians.

In urging me to “buy Canadian” the salesman offered this attractive but misleading assumption: Buy goods or services from abroad and you’re a job-killer at home.

That Victoria salesman was not alone in his mistake. Plenty of people urge consumers and governments to “buy local” even if that is more expensive. The same people also often demand government enact barriers in the belief that will create or protect Canadian jobs.

For example, in British Columbia, opposition MLA Claire Trevena recently re-introduced a bill in the legislature to require B.C. taxpayers to pay more for transportation (though that’s not how she puts it). Trevena wants the government to require that all “ferries, sea-buses and any other vessels used by or for the public” in B.C. be “built, maintained and retrofitted in Canada.”

Trevena’s justification? “Direct economic benefits” and the creation of “good jobs for workers here.”

In Alberta, Premier Rachel Notley campaigned in April on a pledge to have more refineries built in the province. Her justification: Alberta deserves the refining jobs, not Texas.

Such protectionist sentiment knows no partisan or national boundaries. Last Christmas, American presidential candidate and Fox News host Mike Huckabee interviewed actor John Ratzenberger (who played Cliff Clavin on Cheers).

Huckabee and Ratzenberger engaged in a mutual admiration two-person convention on the supposed benefits of protectionist Buy America policies. Their claims included how buying “overseas” cost Americans jobs and taxes, and was hollowing out “America’s middle class.”

But despite declarations from politicians, protectionist pundits and glib actors, here’s a news flash—protectionism doesn’t create jobs and economies. It kills them.  That was the story of the Great Depression where many countries initially sought to “protect” their economies from imports; that ratcheted up costs, depressed demand, and killed off tens of millions of jobs worldwide.

Back then, as now, protectionists forgot that not every person, province or country can create goods and services at the same cost. Some are better than others at various jobs.

That’s called a “comparative advantage.” That, combined with the opportunity cost of an action (what your time is worth) it is why a brain surgeon’s limited time is better used in the operating room as opposed to changing the oil on her car. (It is also why the shop mechanic is best advised not to perform neuro-surgeries on friends.)

Economically, an open, unprotected market not only sharpens one’s skills and makes transactions between people more efficient, the economy and employment numbers both expand because of such efficiencies.

Consider this simple example. Imagine you have $50,000 in disposable income to spend but government policies restrict competition where you live. The result is automobiles each priced at $50,000. Buy one of those and you have nothing left to spend on anything else.

In contrast, take an open economy where automobiles cost $25,000. In that economy, the consumer has another $25,000 to spend: on a vacation or electronic goods or to renovate the bathroom, or all of the above.

Ask yourself which economy—the “protected” one or the open one—creates more jobs, including across borders? The latter, of course, given that more money can buy a greater number of goods and services. That means more people are employed the world over, from Toronto to Tokyo and everywhere in between.

The provincial politicians, protectionist American pundits, actors and photocopier salesman are wrong. Free trade creates many more jobs than it ever kills.