The case for protectionism (Yes, there is one) -

The case for protectionism (Yes, there is one)

Why “Buy America” is a good short-term solution


Outrage over the latest “Buy America” push is so widespread you might think there’s no argument worth hearing from the other side. But here it is. Paul Krugman, the Nobel prize-winning economist, argues that without true global coordination of stimulus, the country spending the most (i.e., America) has a good short-term case for protectionism. Meanwhile, the Guardian’s economics editor draws a hard-edged lesson from history: “The real lesson of the 1930s is that if you think protectionism is in the offing, it makes sense to raise your barriers first.”

The Guardian

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The case for protectionism (Yes, there is one)

  1. I think Krugman is losing his mind. He seems to be arguing that the whole world will be better off if every country implements ‘Buy ….’ policies. I would love to see an example of his theory in practice.

    The other problem with Krugman”s argument is that America is counting on other countries to buy their treasuries to finance the stimulus bills. Good luck to American pols who are going to argue that other countries should finance their stimulus plans but bugger off when it comes to trade.

    • Good point.

    • And yet the “other countries” may not have a choice. Update the proverb to early 21st century: If USA owes a few billion to China, that’s USA’s problem. If USA owes four trillion to China, that’s China’s problem.

      • I think the two largest buyers of US treasuries are Japan/China and I agree there is some kind of M.A.D. relationship between the three countries. However, I think the ChiComs are not adverse to cratering the US economy if they think it suits their interests. The ChiComs worry a lot about public unrest but they also aren’t dictated to by the proles either.

        I have been reading lots about China/US financial relationship in the last few days, since Geitner said China was manipulating its currency. It’s very interesting, Chinese and Japanese are nations of savers and that money has been used to enable West to spend like drunk sailors for the past decade. Now the Japanese are re-evaluating their policies but Chinese, so far, are full steam ahead in lending US money.

  2. Krugman is an idiot and this article is laughable. But it is the logical outcome of the stimulus plan. Why would the US Congress spend US taxpayers money to buys goods from foreign producers? But rather than question the logic behind the stimulus, Krugman comes up with this bit of nonsense to try and justify the protectionism that must – politically – follow it.

    Harper is now facing the same kind of stupidity himself, and already, our politicians are bickering about where the stimulus is being spent (my riding! my riding! me! me!).

  3. Actually Krugman is making sense. If i unerstood his arguement, from a laymans pov, is that in our current liquidity crisis, not normally that is, some protectionism makes sense because there is a danger that worldwide stimulus is too diluted. He doesn’t argue this is ideal, rather he says that a coordinated approach is much to be preferred. Whether he’s right i haven’t the foggiest, but i think i see his pt.
    The guardian article pt out something that’s always been obvious, that at various times all growing economies have used protectionism to grow their economies. It’s a welcome change from the dogma that only globalization has all the answers – but not it seems when you relly want to get ahead. Then good old take care of thyself first seems to rule.

  4. As a Canadian that is surely going to be affected by which ever way my American neighbor responds to the crises I have one question I would like to ask. Will you be parking Sam Waltons fleet of 747’s that make daily flights to China, who is not even our or Americas friend, and finally start stocking your shelves with “MADE IN AMERICA” merchandise instead of pandering to some GREEDY organization whose only interest is in fleecing the consumer? You want Americans to spend money to boost your economy and every time they spend a dollar it goes into off shore pockets. Your greed has stripped the American of his job and then you want him to spend money when he has no way of earning it?

  5. This is what’s called Game Theory. It’s a form of economic study that doesn’t assume people behave rationally.

    Assuming that low trade barriers are in everyone’s best interest, why do some countries choose protectionism? The first country to raise barriers will get short-term benefit, while the costs are long-term & to all countries. Save some jobs local in the next two years & get re-elected; it’s okay if more jobs are lost in five years because you’ll have your politician’s pension by then. Sell more cars this year & get a bonus; who cares if sales tank in five years when you have your CEO’s pay now.

    I don’t have a problem with Buy American. It isn’t a trade barrier, it’s a government sourcing policy. It’s entirely a domestic issue, not bound to international law or trade agreements. American taxpayers are paying for the US bailout, so they get to set conditions. If they said that all American companies had to buy only American goods, that would be protectionism.

    Assume three states of North American steel consumption. State one is no bailout. State two is a bailout buying only American steel. State three is a no-buying-conditions bailout. In state two, there is less steel available for non-bailout activities, raising steel prices & forcing non-bailout buyers to look elsewhere, including to Canadian producers. State two doesn’t harm Canadian steel producers — it just benefits them less than state three. It isn’t American politicians’ job to provide maximum benefit to Canadians.