Joe Biden must reject protectionism

Tom Spencer

July 29, 2020

In November, American citizens will be given the choice between allowing a corrupt wannabe tyrant to remain in the White House or electing an experienced and moderate politician to the presidency. Joe Biden isn’t exciting, but he would bring about a return to sensible politics and the resumption of some sense of normality.

The chaotic and incredibly harmful government response to the coronavirus pandemic in the US has demonstrated what the Trump presidency is all about – senseless populism, a rejection of facts and a total rejection of basic welfare considerations for the Ameican people. I hope Biden wins.

However, the moral necessity of voting Democrat does not mean that Biden is above criticism. He is an ageing moderate. He lacks new ideas. He doesn’t have any particular qualities that anyone could become especially excited about.

He is willing to compromise in unseemly ways to win votes. The part of his campaign called the “Biden plan to ensure the future is made in all of America by all of America’s workers” is a manifesto for Trumpian protectionism.

Biden’s plan essentially boils down to a clumsy mandate which states that $400bn worth of federal energy and infrastructure projects must use only American products, materials and services. His “buy American” campaign is eerily similar to the “buy British” campaigns of the 1930s and 1960s. Both movements fall for the same economic myths. Both risk inflicting significant economic damage. 

The thinking behind this policy approach is that native industry is in need of “protection” from outsourcing and globalisation. It is founded on the belief that cheapening production costs abroad will lead to a decline in American economic strength, resulting in unemployment.

But Schumpeter, who first identified this series of events and termed it “creative destruction”, famously described it as the “process of industrial mutation that continuously revolutionises the economic structure from within, incessantly destroying the old one, incessantly creating a new one”. The Luddite attitude of the protectionist allows them to see the destruction of the old system, but fail to appreciate the incessant creation of the new one.

Creative destruction is merely a symptom of globalisation. It’s a sign that it is working. It represents a shift in the structural makeup of the American economy, as less productive practices are superseded by more productive ones.

For instance, a century ago, almost half of US employment was agricultural. Today, it’s just two per cent. According to the logic of the protectionist, this is a disastrous decrease. But in reality, productivity has increased thirtyfold and prices have fallen.

This happens thanks to Ricardo’s theory of comparative advantage, which explains that national economies will specialise in the goods they can produce with the lowest opportunity costs. In practice, that means that if another country can produce the same goods with lower opportunity costs than the US can manage – they will.

The result is that when certain sectors fall thanks to the competition provided by free trade, others will rise up to take their place. For example, over the last fifty years, manufacturing in the US has been shrinking consistently. But the trend line of overall unemployment has remained largely unchanged.

That’s because other sectors where the US has a competitive advantage, unlike manufacturing, have risen and creative destruction has occurred. The gap left by manufacturing has been filled by other industries like computing and mathematical jobs, social services and personal care, all of which have grown over the same time period.

So, the logic behind “buying American” is fundamentally flawed. Allowing some American industries to fail will pave the way for the creation of newer, better industries, which will bring with them more jobs, a boost to economic growth and superior outcomes for consumers.

The problems with the “buy American” policy, which looks and sounds remarkably similar to Trump’s own “America first” doctrine, do not stop there. Unduly propping up failing industries also bears unnecessary new costs for suppliers.

Thus, the logic behind buying American does not hold up to criticism. Allowing certain American industries to fall will necessitate newer, and better industries to be created allowing for better outcomes for consumers. However, the problems with the policy do not stop there. This also imposes unnecessary costs and hardships on suppliers.

A Wall Street Journal article from 2009 explains the reason for this through the example of Tom Pokorsky. As the owner of an American company supplying sewage equipment to the state, it might seem like Pokorsky would be among the first to benefit from a “buy American” policy.

Unfortunately for him, as has become sadly well-documented, protectionism only breeds more protectionism. When a 2009 “buy American” campaign was met with an opposing “buy Canadian” campaign over the border, Pokosrky lost a quarter of his profits almost immediately, beccause they relied on business in Ottawa.

Just like Trump, Biden has based his policy platform on flawed economics. Such a short-sighted, nationalistic approach will inhibit innovation and cost Americans their jobs. If Biden is not careful, he risks his economic policy being just as nationalist as Trump’s.


Written by Tom Spencer

Tom Spencer is the Chief Organiser of the London Neoliberals and a Young Voices UK contributor.


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