Sunday, March 29, 2009

Misunderstanding Ha-Joon Chang #2

I've got into another argument about protectionism, this time it's with Phillipe Legrain over a Prospect article by Ha-Joon Chang (who I happen to think is awesome). I've copied it here because I thought it was quite good.

Phillipe, I believe you are misunderstanding exactly what Chang proposes in his article. The debate over protectionism and free trade always seems to have one side creating a straw man of the other which is a shame.

You make the assumption that he suggest that all governments agree to raise their import taxes, he does not suggest any such thing. Protectionist measures come in various forms, tariffs being just one of a large number of different policies. Tariffs would indeed be largely counterproductive in most developed countries since many of their jobs depend heavily on imported goods. National governments are aware of this and would realise the folly of such a move.

The real argument, one that Chang doesn't make especially clear in this article is about a pragmatic application of protectionist measures by national governments in order to:A) Promote sustainable future economic developmentB) Preserve viable sectors of the economy going through tough timesC) Actively promote the restructuring of the economyD) Minimise the social cost of economic restructuring

Protectionist measures can assist in meeting these goals, for developing countries tariffs are often a very effective way of raising revenue and can be a useful tool for raising funds in order to encourage development. For developed countries such measures are not pragmatic, but subsidies and low interest loans can be used to promote sectors seen as essential for future growth while causing a minimum of distortion to international trade.

Where I feel the true difference between yourself and those of us who call ourselves "protectionist" lie is in the role of the state. The solutions you propose are broad measures and I personally do not believe these will be sufficient, I believe (and suspect Chang would agree) that any economic stimulus should be far more targeted with a view to promoting specific sectors of the economy.

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