BPEA | 1987 No. 1

The Protectionist Prescription: Errors in Diagnosis and Cure

1987, No. 1

ADVOCATES OF PROTECTION rest their case primarily on two basic premises. The first is the commonsense notion that high-wage countries, such as the United States, cannot compete with low-wage countries. If workers are paid twelve dollars an hour in America and less than two in Korea and both countries have access to world markets for capital and technology, firms located in Korea can always underprice those in the United States. If such countries engage in free trade, workers in the high-wage economy face two disastrous options: unemployment or slave-level wages. The second is the unlevel playing field argument, which appeals to U.S. national self-interest. The real world is dominated by nationalistic economic policies. The competitive, open environment assumed by international trade economists simply does not exist. Only the United States bases its policies on the rules of the free market. Foreign governments support targeted industries with subsidies, selective procurement, and trade protection. The result is an unlevel playing field on which the ball inevitably bounces toward the U.S. goal.