PARIS — For Donald Trump, it’s been an obsession for decades. In the Le Pen family here in France, it’s a precious recipe passed down from father to daughter and daughter to niece: To save the country, for the economy to do better, to avoid factories closing down and reverse widespread unemployment, we should effectively close borders to foreign companies with higher tariffs, a depreciated currency and a national preference.
These seemingly simple, common sense measures, however, miss one tiny point. They will inevitably lead to higher prices. The “clever protectionism” that Marine Le Pen wants would be first and foremost an inflationary protectionism. In a world in which transferred revenues grow bigger and bigger, the poorest would be the ones hit hardest, if only because the population is aging. Well, is that social justice?
That money didn’t go to employees, but to stockholders.
First things first: rising prices. A quick example does a good job to reveal the machinery at play. In late 2009, Barack Obama drastically raised tariffs on Chinese tires (from 4% to 39%, then brought down a bit to 29% in two steps). Economists Gary Hufbauer and Sean Lowry studied what happened in this case, basing their research on very cautious calculations. As expected, imports from China dropped by half, while prices soared (up 25%). But exporters from Mexico, Indonesia and Thailand seized the occasion offered by lower Chinese pressure to also increase their prices. U.S. producers followed suit, as they struggled to meet the demand, given they had long abandoned the lower-end market to their counterparts from China.
In the end, U.S. consumers now spend $1.1 billion more every year on tires. With the 1,200 jobs that were saved in the American rubber industry, that comes out to roughly $1 million per job saved. And most of that money didn’t go to the employees, but to the stockholders of non-Chinese producers.
The story doesn’t end there. In the U.S., you need 3,500 employees in trade to make $1 billion of revenue. But since consumers paid more for their tires, they spent less on other items. The destruction of $1.1 billion in revenue thus led to the loss of 3,700 jobs in distribution — a lot more than the number of jobs saved in the industry. This doesn’t even factor in the jobs lost in the poultry industry as a result of a retaliatory measure from China.
This isn’t the only lever that pushes prices higher. Over the past two decades, “long commodity chains’ stretched “between production and consumption,” as historian Fernand Braudel had predicted. With the opening of former Communist countries and the exchange of information made easier with the internet, these chains often travel right across borders. So much so that 80% of global trade now takes place within the value chains of transnational companies, according to the United Nations Conference on Trade and Development.
Introducing barriers on borders would break these chains, provoking brutal price hikes. Examining closely what would happen in companies, economists Joachin Blaum, Claire Lelarge and Michael Peters reached the conclusion that “French consumer prices in the manufacturing sector would be 27.5% higher if French producers were forced to source their inputs domestically.”
You buy Chinese socks, not those made in France.
In the end, consumers largely benefit from these imports, as they increase their purchasing power. According to the calculations of researchers Charlotte Emlinger and Lionel Fontagné, the sole imports of consumer goods from low-wage countries save each household between 100 and 300 euros every month. And the price hike caused by tariffs penalizes the poorest the most — those for whom paying as little as possible is essential. When you’re down to counting every cent from the 15th of every month, you buy Chinese socks for 1.50 euros rather than those made in France that are ten times more expensive.
French daily bread — Photo: Philippe Vieux-Jeanton
In the U.S., economists Katheryn Russ, Jay Shambaugh and Jason Furman (the last two were advisers to former U.S. President Barack Obama) clearly demonstrated that, proportionately to the money they spent, the poorest families paid more tariffs than the rest. It’s the opposite of a progressive tax: “Tariffs function as a regressive tax that weighs most heavily on women and single parents,” they concluded.
The defenders of protectionism prefer to ignore this basic truth. They highlight the need to defend the producer, to the detriment of the consumer — as French politician Jules Méline did in the late 19th century, backed by then Socialist leader Jean Jaurès.
The problem is that things changed in the 20th century. Revenue depends less and less directly on production, and more and more on a welfare state that is responsible for about half of the domestic product (and slightly more in France). Pensions, social benefits, unemployment compensations account for about one-third of the French’s wages, and a lot more for the poorest. Now, the protectionist inflation would hit first and foremost those worse off — utterly different from the situation in the 19th century, when tariffs on farming imports could potentially lead to higher revenues for the half of the population that worked in the agricultural sector.
Yes, we are now in the 21st century, where protectionism is a policy bound to undermine social justice.
