Protectionism Hurts Us, Too
When I lived in the idyllic city of Victoria, a photocopier salesman once tried to lease me one of his machines by noting mine was made in Japan, while his was manufactured in Canada. He told me I should lease the latter, not the former, to support Canadian jobs.
The salesman couldn’t have known this, but I’d spent two years in the land of the rising sun, so he lost me at “Japan.” I like it when my fellow Canadians have jobs; I also like it when my friends in Japan are employed.
I recount the story because the nationalist card is often played, and not only in private sales pitches.
This happened again recently when I was interviewed by a Vancouver talk-show host on the question of business subsidies. On the issue he brought up — buying ferries from Germany for BC Ferries rather than made-in-Canada ships — the host seemed rather insistent that it was a swell idea for taxpayers to pay extra so ferries could be built in Canada.
Even if the host was only being a good contrarian, plenty of people will shamelessly demand government spend lots of extra money to “buy local,” even if the cost is millions or billions of dollars more.
This is daft. For one thing, the patriot stuff sometimes veers close to being xenophobic. For another, the notion that jobs in Canada come at the cost of employment in Japan, India, China or Germany, or vice-versa, is profoundly mistaken. Companies do occasionally shut factories in one country and set up shop in another, but that happens both ways.
And plenty of people in other countries busily make the same anti-foreigner argument about Canadians as some Canadians do about others. The US Congress is a good example. So too Japanese bureaucrats, who, at least when I lived there, tried to ban California rice on the grounds it was unhealthy. (The real reason was Japanese protectionism for farmers at the expense of consumers.)
Fundamentally though, job creation is not a zero-sum game where one must choose between one’s own country and another. Free trade between cities, provinces and countries helps all economies expand and to create jobs; that’s the rising tide that lifts all boats.
There are many necessary factors for growth, and concurrent rise in living standards and social indicators (property rights, independent courts, sound currencies, to name a few), but one critical “plank” is openness to trade.
Between 1870 and 1913, increased free trade had no measurable negative effect on British employment
The late Dutch economist, Angus Maddison, in a landmark OECD study that covered 1,000 years of the world economy, noted many useful things about free trade, but here’s one example of how openness benefits everyone. With reference to the British in their free trade heyday, and their willingness to import a large part of their food supply, Maddison wrote that this had a “positive effect on the world economy: “They reinforced and diffused the impact of technical progress. The favourable impact was biggest in North America, the southern cone of Latin America and Australasia … but there was also some positive effect in India which was the biggest and poorest part of the Empire.”
And such policies, which benefitted those of us in North America, did not hurt Great Britain. There, the number of people employed rose from 13.2 million in 1870 to 19.9 million by 1913. The population had of course grown, as well. But increased free trade had no measurable negative effect on British employment.
In contrast, consider how events and policies can kill jobs. That happens when inward-looking protectionist measures are adopted, either because of war, which inevitably reduces trade, or as in the example of the Great Depression, itself not caused by the 1929 stock market crash but by government policies that followed the crash and which produced mass unemployment.
“The old liberal order was shattered by two world wars and the collapse of capital flows, migration and trade in the beggar-your-neighbour years of the 1930s,” writes Maddison, who points out that between 1913 and 1950, merchandise exports as a percentage of every country’s economy dropped significantly, and with it, employment levels. Overall, the world economy grew much slower in the 1913-1950 period than in the 1870-1913 era, where open trade was more the norm.
Whether the issue is photocopiers, ship-building or indeed any item at all, open trade has always propelled the world economy forward and created a cornucopia of jobs.
For those who value their jobs or those of their friends, family and other Canadians — and also like the notion of those in other countries having employment — relax, there is no need to think like a narrow nationalist and a protectionist. Jobs can be created in one’s own country and abroad at the same time.
This article first appeared in the National Post.