Home > economics, philosophy, politics > Protectionism No Cure for Economy, Trade Deficit

Protectionism No Cure for Economy, Trade Deficit

I’m always fairly amused whenever I hear liberals talking about the importance of manufacturing and using government to subsidize temporary jobs programs to reduce unemployment.  I mean, there’s essentially a universal consensus amongst economists that protectionism and corporate welfare encumber economic success while open markets and free trade stimulate it.  But Senator Diane Feinstein (D-CA), no economist is she.

Sen. Dianne Feinstein called Monday for a new initiative to promote lending to U.S. manufacturers in an effort to spur job creation and shrink the U.S. trade deficit.

The California Democrat proposed authorizing the U.S. Export-Import Bank to use $20 billion of unobligated authority to lend directly to domestic manufacturing companies that are competing with foreign competitors subsidized by their own governments….

…“In today’s global economy, the federal government must more actively partner with the business community….” “Manufacturing is a proven source of well-paying jobs for those of all educational levels and we must have a thriving manufacturing sector in order to address our chronic trade imbalance and return our economy to sustainable growth.

Cato’s Sallie James details where this goes wrong.

Where to begin? First, there is no earthly reason why “we must have a thriving manufacturing sector in order to address our chronic trade imbalance.” We could bring our trade account into balance through services or agricultural exports if “addressing our chronic trade imbalance” is what keeps you awake at night.

…I question why taxpayer dollars should be put at risk supporting some of America’s most profitable countries (does Boeing really need your money?) and draw attention to the inefficiencies and distortions caused by export credit programs. Senator Feinstein shows a narrow understanding about the “cost” of things when she suggests that because Ex-Im is “self-financing” (i.e., its activities are funded out of fees and collections from its previous loans) it is not costly. In theory the government could take 100% of the economy’s production and give all of it away again at “no net cost to the taxpayer” (just like the sugar program!). Could one seriously argue that such an approach would not be enormously costly in terms of economic prosperity  (not to mention, you know, personal freedom and stuff)?

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