[Mekantis]

People like to pretend that protectionism is such a bad thing. But Western nations built themselves through protectionism, it's something China has been doing to great success and the Asian tiger economies (primarily South Korea) did as well. After all, there's only so much you can do for your population if you never ensure a steady supply of high quality jobs that provide a path into the middle class, and you don't protect fledgling industries (beyond basic commodities) that are necessary to create these jobs but can't compete properly against well-established companies elsewhere. It's one of the great neoliberal myths that they've so successfully perpetuated (primarily through institutions like the IMF and the World Bank) that free trade and vicious, expansive privatization is the only right path.

[mardifoufs]

Latin america and even india are proofs that "pure" protectionism does not work. Even China is an example of free trade working. China opened up massively, reduced customs, reduced costs of doing business etc for 3 decades before moving towards more restrictive and more protectionist policies. After learning as much as possible from foreign corporations that flocked to China. Even now, free trade would be much more beneficial to china economically if it wasn't for the current geopolitical situation. Of course it was very far from a totally deregulated free market, but the Chinese government craved foreign investment for most of the 1990s-2000s and did everything to attract it. India on the other hand has a very bad reputation when it comes to international investment because of it's famously poor economic (and protectionist/populist) policies that made investment very risky.

It's very hard for a country like India or Argentina to actually innovate when they restrict themselves to a local pool of knowledge, talent, and experience. And that's precisely why India has lagged far, far behind China even if they were ahead in the 1970s-80s. You don't want to reinvent everything all the time, it just isn't possible without lagging far behind and that's what happens with protectionism.You will almost always end up with a low skilled economy with basic economic output (like beverages or commodities).

It's easy to totally replace coca cola with local alternatives, it's impossible to do for sectors like semiconductors or finance when you have to start from almost 0 because no one wants to invest in a protectionist economy.

[hristov]

Latin America is an example how the "free market" theory as espoused by the washington consensus is very bad for developing nations. Latin America is the region that most closely follows the washington consensus and they have suffered for this mightily for this over the post ww2 years.

There were little spurts of protectionism in argentina and brasil but those happened only around the 2000s and only as a reaction after many years of gutting the countries under free market policies.

Holding China as an example of free trade success is a little wrong, to say the least. Post ww2 China has always had a very carefully crafted protectionist policies, and while they did open up majorly, they are still very protectionist by almost any sane international standard. Lets not forget that even now to start any significant business in China you need to make sure that Chinese nationals own a majority of your business.

India liberalized much more than China during the 80s and 90s, so if you want to make that comparison, India should be on the free trade side. In my opinion though the Chinese economic success in comparison to India had much more to do with domestic social policies. China simply did the best to ensure that despite wide spread poverty most people have access to education, clean water, modern medical services, modern telecom and transportation infrastructure, etc. India, on the other hand, as part of their "modernization" gutted social programs (again, listening to the Washington consensus) and they still have a vast part of their population in a more or less pre-industrial state of education and development.

[wslh]

> There were little spurts of protectionism in argentina and brasil but those happened only around the 2000s and only as a reaction after many years of gutting the countries under free market policies.

On the contrary. Brazil and Argentina are super protectionists and never had a free market economy in the last decades. Free market means entering product from other markets with a near zero tariff. For example, the price of a notebook in theses markets is 2x the price in US, and always worked like that. For an Argentinian a top of the line 13" MacBook Pro in US at USD 2k is cheap because in Argentina that will cost more than USD 4k. There were arbitrary cases (e.g. clothes) where in the 90s the imports from China broke local factories but never a free market economy but an arbitrary market economy.

[unishark]

> There were little spurts of protectionism in argentina and brasil but those happened only around the 2000s and only as a reaction after many years of gutting the countries under free market policies.

Have you tried selling software or licensing technology to companies in Latin America? In my experience you will need to double or triple your prices because pay a majority of your income in protectionist taxes.

The result is they have local companies selling some select technologies we have, and little or no access to most technology we have.

[mardifoufs]

Of course liberalization isn't magical and does not solve all economic problems. There are tons of reasons why India failed in its liberalization program, lack of focus and coherent policy being the most important ones. Now of course China is far from your standard free market, but as you said, they have been enforcing a very strict protectionist policy for most of the 20th century. And for most of the 20th century, china really was full of misery and abject poverty which is something that only ended with a relatively incredible opening to the world's markets.

I also should've been more clear, what I'm talking about is more free movement of goods than the libertarian definifion of free markets. You can import and export goods in China pretty easily, but it's a nightmare in countries like Argentina. You are (or were, until recently) also relatively safer in china, when you don't have to worry about sudden anti-business measures, tariffs, or outright death by targeted regulations

Also, protectionism in south america has a very long history [0], and was already very strongly enforced much earlier than the 2000s. The concept of protecting "Infant industry" is ingrained in much of the region's recent history. And again, the countries that are doing better right now in latin america have mode liberal trade policies. I don't understand how it's not outright obvious that latin america has shot itself in the foot multiple times with very inefficient, very populist protectionist policies that made competitiveness impossible and commodities/primary goods the only productive sectors.

[0] https://www.nber.org/papers/w8999

[intended]

I think you’ve made an argument for free trade, but your examples and logic don’t refute the value of protectionism.

China is a ridiculously protectionist state - people in the west had theorized that the market would force China to more opennness and democracy back in the day.

China instead found a way to run a market with Chinese characteristics - a dual contract system where the English contract holds little power, knowledge transfer, a closed media environment and more.

It’s worked too. China suggests that some players can extract the benefits of free trade and protectionist policy.

[mardifoufs]

I totally realize that China is far from liberal but it has been much more prosperous and became a superpower because it has liberalized vast swaths of the economy. I guess it would have been better to say that it's doing better than India because it moved a hypothetical protectionism-free trade slider further to the free trade side. There are tons of smart decisions from China that also made the liberalization very successful, such as understanding the vital importance of foreign capital, access to the world's markets, infrastructure investment, and slowly building up knowledge instead of going all in "in house" too quickly.

Still, none of what has been accomplished in China could've been possible with very high tariffs, obsession in homegrown industry before acquiring expertise, and obsession with policies that have always failed but still sound good to the electorate. All of which are characteristic of India, Argentina, Egypt, etc. And I'd argue that China is better when it comes to free movement of trade than India even if it's much worst in almost every other type of freedom.

[unishark]

> China is a ridiculously protectionist state - people in the west had theorized that the market would force China to more opennness and democracy back in the day.

The Chinese government has almost completely lost control of its market. They can control (and profit massively from) very narrow things like blocking foreign servers on their internet (which happens to include our largest tech companies) but otherwise it is very much the wild west over there. The political system has chinese characteristics, but the wildfire of capitalism going in is just plain capitalism, and more so than in the US in some ways.

As for whether the government can survive, this is a complicated question but sooner or later an opposition group always defeats the rulers. I wound't write this ending off yet. Or ever, really.

[adi2907]

China never allowed unfettered access to global firms. Since Deng Xiaoping opened up, the rule for a foreign firm to gain access was 1) to tie up with a local company which will have significant stake and 2) ensure technology transfer to the local company over a period. This was a pre condition for market access, and basically how electronics components makers were built. The recent stars like Huawei, Xiaomi and Lenovo could only be built once the supply ecosystem was local. You will not find a single example of any country becoming developed following free trade except for island nations like Singapore

[jariel]

" You will not find a single example of any country becoming developed following free trade except for island nations like Singapore"

Canada, Australia, New Zealand and in reality, the US as well.

The US has always been pretty open.

But yes, if a nation is in shambles, it may very well make sense to make major strategic investments for the national good, but ultimately, it can't last.

Korea, Japan etc. would be much poorer today if they had continued to manage their economies in a post-war fashion.

[bobthepanda]

The US being open is mostly the postwar period. Tariffs were huge pre-WWII, in fact the Great Depression was probably exacerbated by rounds of tariff retaliation: https://en.wikipedia.org/wiki/Tariff_in_United_States_histor...

[rodgerd]

New Zealand has fallen further and further behind its nearest neighbor over the time it's taken a hard-line free-trade position.

[postingawayonhn]

That's not a very critical look at the situation.

Australia has major advantages when it comes to natural resources and geographic proximity to Asia. There's also major structural issues with the Australian economy with significant agitation at present for major taxation and industrial relations reform.

[mardifoufs]

As I said, China is now able to afford protectionism because of a much more foreign investment minded policy than India. It's weird to only focus on protectionism being a positive when almost all of the more protectionist countries are way behind economically. China has been the most successful when it has had the least closed economy and it didn't start producing Lenovo laptops because of protectionism. If that was the case, why don't we have Indian or Argentinian laptops by now?

Arguing that protectionism is good because you are producing beverages when the downside is literal decades lost to anemic growth and poverty is just missing the forest for the tree. India was at a similar but better place than China was, but China embraced foreign investment, liberalization, low friction to trade. And india got totally leapfrogged. Things are changing now, but for a while China was definitely much safer to invest in than India since the whole country was hellbent on not interfering with foreign investing. You were (and still are) much more likely to get your investment made worthless by aggressive "local at all costs" policies in India than in China. Look at what happened to Walmart recently. India wants desperately to skip the "industrialization" and foreign ownership phase and go directly to where china is now, but that's ignoring 30 years of smart policy in China.

Keep in mind, free trade and free international markets still allow for a very regulated economy and socialist policies. So protectionism, by reducing prosperity and investment actually cripples social programs. Scandinavia is known to be "social democrat" but still has a very open economy. Prosperity has been mostly induced by free movement of goods. Of course, China does not want to keep being a manufacturing only economy, and is moving towards a service oriented one. But that's what always happens

[imtringued]

I agree with your comment. First you want to drag your country up to the same level everyone is at. Usually this is done by letting investors into your country because they will do the same thing they did at home. Only once the investors have established a profitable and self sufficient industry it is time to kick them out.

Someone also mentioned that Brazil is putting tarrifs on foreign goods. This is fine but there should be an exemption for foreign companies operating within the borders of your country. The exemption would apply to products assembled within Brazil. That way Apple could decide to build a factory in Brazil and provide job opportunities.

[markdown]

> You will not find a single example of any country becoming developed following free trade except for island nations like Singapore

So you will.

[systemvoltage]

Easy to prove the point: Stop importing semiconductors and see how India or Argentina would fare.

[missedthecue]

"People like to pretend that protectionism is such a bad thing"

David Ricardo mathematically proved it was a bad thing over 200 years ago. It absolutely befuddles me that people, especially in scientific communities, continue to support its implementation. Hong Kong has always been free trade and their GNP per capita is now greater than all of western europe, barring Norway (which is equal to HK). Protectionism makes yourself poorer.

Isn't interesting concerning tariffs that what we do to our enemies during wartime we do to ourselves during peacetime.

[dragonwriter]

> David Ricardo mathematically proved it was a bad thing over 200 years ago.

Ricardo’s proof applies to comically simplified conditions which fail to consider a number of factors that exist in real world trade and resulting shifts of specific industries between countries including:

(1) potential impacts of current activity on future production possibilities, and

(2) strategic impacts of different production patterns and how that effects non-trade international relations, including war.

That's not to say it's not an important result that has massive implications for policy, but it is far from proof that protectionism is a bad thing in every case. It does prove that it always comes at a short-term cost, so you'd better have a specific long-term strategy that justified the short-term cost, though.

[ethbro]

Politicians have always befuddled economists.

Economists have always befuddled politicians.

Unfortunately, the collision of the two typically leads to the worst of all outcomes without the benefit of any. E.g. Implementing protectionist policies without a low term plan for their withdrawal.

[fiblye]

Because it's a small city with zero resources that acts as a gateway to the Chinese economy as a whole. If China didn't use HK as its economic entry, HK would be absolutely worthless with Singapore relatively nearby and in a much better geographical position.

Larger, independent countries with resources that open themselves to the extent of city states end up selling their resources to the lowest bidder (after the proper hands get a little extra) and having their industries siphoned off to places that'll work for less.

If economics were so easy that the optimal way was mathematically proven 200 years ago, I think economic difficulties would be resolved by now.

[missedthecue]

"If economics were so easy that the optimal way was mathematically proven 200 years ago, I think economic difficulties would be resolved by now."

I think you underestimate the market failures of the political system. Politicians are not interested in doing what's best for society, but what gets them votes and donations to help reelection. Sometimes the two align. Other times they do not. Like it or not, that is how the incentives are set up. This is why rent control for example keeps getting passed time and time again despite economists unanimously agreeing that it does not work.

http://www.igmchicago.org/surveys/rent-control/

[kevin_thibedeau]

> their GNP per capita is now greater than all of western europe

What if Shenzhen didn't exist across the river? HK is part of a unique economic environment with significant externalities making it prosperous.

[newyankee]

Approaches that make small countries like Singapore, Taiwan or Hongkong succesful are not easily scaled to a large one like India. Using them as examples in arguments is very disingenuous.

[missedthecue]

Just because India has 1 billion people does not mean that they would be better off buying inferior goods at higher prices.

Hong Kong is equal or larger than Austria, Switzerland, Denmark, Finland, and Ireland.

Taiwan is larger than all those, plus the Netherlands, Portugal, Belgium, and many others.

They are richer because of their adoption of free trade.

[unishark]

> What if Shenzhen didn't exist across the river?

I think you have this backwards. Milton Friedman was already raving about Hong Kong leading the world back in 1980.

https://www.youtube.com/watch?v=m0dfiWM-rsE https://en.wikipedia.org/wiki/Free_to_Choose

The first special economic zone was created in Shenzhen in 1980, coincidentally. It's population at that time was around 60k according to this link:

https://worldpopulationreview.com/world-cities/shenzhen-popu...

Hong Kong's population was in the millions at that time. The SEZ was created specifically to imitate HK and other successful neighboring economies.

[aww_dang]

Then the capital accumulated in HK would build Shenzhen, again.

[systemvoltage]

This is wrong, misguided and naive.

International trade when done with effective reciprocity and managing the trade deficit, can lead to competition on a larger scale, better outcome for consumers and specialization in particular aspect of manufacturing or services.

Even domestically, specialization is how human species became to me. If humans continued to be inwards looking and never engaged in barter-trade or any kind of bilateral exchange either with monetary instrument or goods/services; we would still be caves.

National to international trade is just one more step in the expansion of trade that we all benefit from. We have proof that it works when all parties are rational and cooperative. If we found aliens on another planet, it would only make sense to trade with them (just increasing the abstraction layer from national to international to interplanetary).

[rbecker]

> International trade when done with effective reciprocity and managing the trade deficit

This is exactly what protectionism can help achieve. Without it, you get banana republics, wholly owned by foreign multinationals.

It's telling you ignore the parent posts Asian tiger economies as examples of successful protectionism, and instead address the ridiculous strawman of "never engaged in barter-trade or any kind of bilateral exchange either with monetary instrument or goods/services"

[Mekantis]

> This is wrong, misguided and naive.

I'd appreciate it if you didn't jump straight to insults.

> International trade when done with effective reciprocity and managing the trade deficit, can lead to competition on a larger scale, better outcome for consumers and specialization in particular aspect of manufacturing or services.

I didn't say international trade should be stopped entirely. "Free trade" isn't "all trade". I'd appreciate it if you didn't strawman me. A part of the myth is the idea that free trade means perfect competition. No, it means a massive existing company can easily buy up local competitors and ensure that competition ceases entirely.

> Even domestically, specialization is how human species became to me. If humans continued to be inwards looking and never engaged in barter-trade or any kind of bilateral exchange either with monetary instrument or goods/services; we would still be caves.

This ignores the many cases where countries have protected local industries despite these industries existing elsewhere producing far better products and being far more competitive, and been wildly successful because of it. And again, I never said "no trade ever at all allowed because all trade is bad".

> National to international trade is just one more step in the expansion of trade that we all benefit from. We have proof that it works when all parties are rational and cooperative. If we found aliens on another planet, it would only make sense to trade with them (just increasing the abstraction layer from national to international to interplanetary).

I never said otherwise. Trade is fine. Foreign companies crowding out local industries to the point that local jobs are primarily low quality and low paying is not (see the number of countries that are relegated to production of fabrics and other low-cost goods).

[a9h74j]

> aliens on another planet

Related thought experiment: What if the aliens were 1000 years ahead in patenting everything (in a way which didn't expire), then forced their IP regime on Earth, extracting IP rent for everything, since it would _only_ make sense to trade with them?

[systemvoltage]

You know the answer. Mutual trade makes sense when trade deficit is managed, there is cooperation and symmetry. We don't need to go to aliens for that, right now we have China that's creating asymmetry in the trade and it doesn't play by the fair rules. For example, US allowing TikTok and WeChat but China banning Facebook/IG and Google.

[imtringued]

This is such an amazingly good question because it directly relates to real life. Of course you would trade with them to get 1000 years ahead and then once you are at the same level as them you would betray them and completely ignore their "stupid" IP laws. This is basically what China has been doing for decades now.

[mahkeiro]

It won’t prevent new product to be patented, so innovate...

[pcurve]

"International trade when done with effective reciprocity and managing the trade deficit, can lead to competition on a larger scale, better outcome for consumers and specialization in particular aspect of manufacturing or services."

you need a properly functioning local government, which is pretty rare in developing countries.

[missedthecue]

But it's not an indictment of free trade

[vl]

Free trade advances human race as a whole and raises average standard of living. But it’s important to understand what is at the end of this advance: irrelevance of labor.

Not only hyper-optimization produces fragile systems (i.e. look at the mask and sanitizer shortages at the most wealthy nation on Earth), it also eventually will make most of the labor uncompetitive.

You can only consume so much on credit, I’m not sure how world will reshape when most of the humans cannot contribute anything of value.

[ejanus]

I don't think this is correct. It favors those with capital and technology. The strong over the weak. And it increases the barrier to enter. Look at Africa(my continent) as an example of where free market leads to collapse of economy.

[reaperducer]

The problem is that so many people have an all-or-nothing mindset. It's part of the tribalism that's running rampant through society as a whole, and is very destructive.

Free markets are great. So are some closed markets. There has to be a balance.

[imtringued]

The real secret is economic stability and business friendliness. Foreign investors will automatically flock to your country if you do that and they will leave as soon as you destroy investor confidence. Foreign investors are good because they provide money, training and business expertise. Once foreign companies have set up shop in your country they provide a workplace for your citizens but more importantly your citizens are becoming skilled workers. Some of those skilled workers may become entrepreneurs and when that happens you will need some degree of protectionism for specific industries.

Argentina basically trampled on economic stability and investors. The idea behind welfare is dragging up the poor because there are so many rich people your country can easily afford it, obviously Argentina is not such a country. They have some core export industries but not much else. What happened instead is that the government spent too much on social programs, ran a heavy deficit with no ability to borrow money because they were locked out of the international lending market through their own incompetence. So you have to print money to fund government programs which leads to heavy inflation. They also randomly partially nationalize companies if they are mostly owned by foreign investors. Imagine you buy a car and the car dealer calls you tomorrow that you must bring your car back for a refund. Once an investor gets burned he won't come back. The importance of investor money can't be overstated when your country is bleeding money with no ability to borrow. Metaphor: For some reason people prefer being "in moderate pain" for the rest of their lives over a quick but highly painful recovery.

[bobthechef]

Friedrich List[0] made exactly this point. The United States, for example, is often portrayed as the paradigmatic example of the unregulated free market, but it is actually quite protectionist (some of the measures lead to perverse economic incentives like those surrounding the corn industry) and its economic power rose precisely because it exercised protectionist measures against the emerging industrial powers of Europe like Britain and France who would have been able to crush nascent American competition. List believed that free markets make sense within a domestic economy, but that import tariffs may be legitimately imposed when it results in domestic benefits.

[0] https://en.wikipedia.org/wiki/Friedrich_List

[nabla9]

Joe Studwell's book "How Asia Works" explains how to do protectionism well (as how Asian tigers and others did it)

1. Land reform so that people can generate money from farming and generate financial surplus.

2. Controlled domestic finance sector protected from external competition..

3. Export oriented manufacturing where products are exposed to global competition but financing comes from domestic sources. This kind of partial protection allows capital accumulation even when products are inferior at first.

Asian countries that failed in the first step never became tigers or are still trying. Incidentally China had partial land reform that started from bottom up (illegally) but was later accepted.

[econcon]

> it's something China has been doing to great success and the Asian tiger economies (primarily South Korea) did as well.

When india imposed duties against chinese steel, the steel sector grew but soon the Real Estate sector accrued high input costs and real estate became expensive.

Same happened to automobile sector in india, yes few people gain from protectionism at expense of others.

I'd go on 1 foot and tell everyone, quality of skilled labor in india is bad not because of lack of quality education but because they are not able to afford quality tools which international market has to offer. Primary reason for that is those tools are only available to you if you work for big companies, goverment has put lots of taxes/tarrifs/duties on that which is HUGE relative to what people make there.

India has taxes duties more than europe but doesn't offer its citizen as much benefits as europe does.

[newyankee]

Indian real estate is expensive due to outdated town planning and land use laws. This is because the people who control most of the real estate (politicians) do not want increase in supply which depresses its price. Construction cost although important is a much lower part of the equation compared to land cost.

[ardit33]

If that is true, then Argentina (and many other Latin countries that adopted protectionism policies) would be flourishing. Argentina should be as rich as Canada, but they are 1/5th of their level.

Protectionism might workout/help out for a limited time to jump start nascent local industries, but in the long term is damaging to an economy.

[mistermann]

Or, perhaps there is more than one single variable involved in economic development.

[imtringued]

Protectionism isn't about jump starting local industries. It's about converting foreign owned local industries into domestically owned local industries. You can only afford to do it once you no longer need foreign investors.

[WalterBright]

When one company tries to punish another, it imposes embargoes and sanctions. I.e. protectionism.

The "embargoes bad", "protectionism good" doesn't make a whole lot of sense.

[econcon]

Like Indian comment producers were found colluding to keep the domestic cement price high.

If there was competition from foreign players, this would have not happened

[newyankee]

This is true. Transparent regulation and enforcement of rules is the only protection. Other examples is the sugar industry 'mafia' in the state of MH where private players cannot easily enter.

It is not like we do not have any checks and balances. We have an activist Supreme court as well as high courts which ignore average folks but open their doors at 3 am for special hearings for important folks.

However overzealous regulation in India has also meant that a Copper plant in India was closed in Tuticorin after protests allegedly funded by Chinese interests. Now India imports Copper from China. Apparently the main reason why protests happened (pollution) did not change 1 year after closure of the plant. Whereas thousands of poor unskilled laborers did lose their jobs.

[thrwo334324]

This is not surprising though, is it ?

Britain's "benign civilizing" (schools in anglo-saxon nations have no shame) policies vis-a-vis India were severely skewed against India, and towards protecting her own fledgling industries.

Mercantilism, 'a.k.a' Free Trade, was then exactly what China does now - freedom to sell my goods in your place. Opium wars too was all about 'Free Trade'.

[rayiner]

> Mercantilism, 'a.k.a' Free Trade

Where do people get this Orwellian Newspeak? Mercantilism is the opposite of free trade. Colonials were prohibited from trading with anyone else, and prohibited from choosing not to trade (were not permitted to have their own industries higher up the value chain). It was not free trade in any respect.