Tuesday, February 3, 2009

Time for Import Restrictions?

Nobel Laureate Gary Becker reminds us that the benefits of trade don't go away during a recession. Getting back to a healthy, growing economy as quickly as possible will depend on trade (voluntary exchange) with the rest of the world.

While it's certainly true that higher tariffs on imported steel will benefit the domestic steel industry, it's also true that the rest of us will bear the cost of that benefit. We will bear the costs in the form of more expensive infrastructure projects. We will also bear the costs through reduced exports of what we produce domestically.

Focused benefits with dispersed costs is the order of the day in the stimulus bill. Gary Becker explains it, yet again.

Buy American Once Again-Becker

Every recession, including those milder than the current recession, leads to pressure to reduce spending on foreign goods by raising tariffs and other import restrictions. The avowed goal is to help domestic workers and businesses that are going through difficult times. Hostility to imports when unemployment is high and rising is surely understandable. Nevertheless, it is unwise to engage in seriously restrictive international trade policies even during a serious recession.

Unfortunately, in the recent stimulus bill passed by the Democratic members of the House of Representatives, the recession is used as an excuse to promote "buy American" policies. The bill would, among other similar restrictions, ban the use of non-American steel in the many construction projects that are part of the stimulus package. This provision was included even though it appears to violate US obligations under the rules of the World Trade Organization, and under the Nafta agreement with Canada and Mexico. This buy American provision in the stimulus bill has already led to retaliatory threats by several European and Asian countries since many other countries are also eager to place greater restrictions on imports. Click here for the full article

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