THE AGE OF REASON 85
short run, ultimately there may
be losers as well as winners, and
consequently opposition to the
opening up of trade.
The cries for protectionism
are as loud today as they were in
Ricardo’s time. In 2009, China
accused the US of “rampant
protectionism” for imposing heavy
taxes on imported Chinese car
tires. The decision to increase
tariffs came after pressure from US
workers, who had seen tire imports
grow from 14 to 46 million from
2004–08, reducing US tire output,
causing factory closures, and
creating unemployment. However,
the US had previously accused
China of unfairly subsidizing its
own tire industry, so tensions
mounted. China’s response was
to threaten retaliatory increases in
import taxes on US cars and poultry.
Tariffs produce effects that ripple
through economies. Any protection
gained for US tire producers from
the tariffs on tires, for example, was
counteracted by other negative
impacts. Higher tire prices increased
the costs of US cars, making them
less competitive and reducing the
numbers bought by US consumers.
The retaliation by China also
damaged US export industries.
The jobs of some US tire workers
may have been saved, but in the
wider economy many more jobs
were lost.Protectionism today
The US economist Mancur Olson
has helped to explain why politicians
continue to impose policies that are
likely to damage the overall economy,
even though the costs are widely
known. He points out that those
against the tariffs—a small number
of large domestic producers and
their workers—suffer a visible
impact from cheap imports.
However, the potentially larger
number of consumers who have to
pay higher prices because of tariffs
and those workers in affiliated
industries who might lose their jobs
through connected impacts are
dispersed around the economy.Contemporary trade
Today, most economists support
the basic Ricardian position on
trade and, in particular, believe that
it helped today’s industrialized
countries. US economists David
Dollar and Aart Kraay have argued
that over the last few decades trade
has helped developing countries to
grow and reduce poverty. They
claim that the countries that cut
their tariffs have grown faster and
have seen less poverty.Other economists have questioned
whether trade always helps
developing countries. The US
economist Joseph Stiglitz (p.338)
argues that developing countries
often suffer from market failures and
institutional weaknesses that might
make a too rapid liberalization of
trade costly for them.
There are also contradictions
between theory and practice. When
the government of India removed
tariffs on imports of cheap palm oil
from Indonesia, for instance, it had
the positive effect of raising the
living standards of hundreds of
millions of Indians, in line with
Ricardo’s theory, but it destroyed
the livelihoods of 1,000,000 farmers
who grew peanuts for oil, which was
now passed over for palm oil. In a
perfect Ricardian world the peanut
farmers would simply transfer into
the production of other goods, but
in practice they can’t because their
investment in capital is immobile—
a machine that processes peanuts
has no other use.
Ricardo’s critics argue that in
the long run these kinds of impacts
might hamper the industrialization
and diversification of poorer
countries. Moreover, although rich
industrialized countries became
successful traders, they did not
practice free trade when they
were first developing. How
countries build up comparative
advantage over the long run may
be more complex than Ricardo’s
model suggests. Some argue that
Europe and then later the Asian
Tigers (pp.282–87) built it up
through trade protection
in which skills were developed
before trade opened up. ■Goods made in Asia are transported
to Western countries in vast container
ships. It is estimated that 75 percent of
goods in a typical US shopping cart are
exported to the US from Asia.The diminution of money
in one country, and its
increase in another, do
not operate on the price
of one commodity only,
but on the prices of all.
David Ricardo