THE WELFARE EFFECTS OF USING TARIFF

The Welfare Effects Of Using Tariff As A Form Of Protectionism

The Welfare Effects Of Using Tariff As A Form Of Protectionism

Protectionism and its opposite, free trade, are hot topics these days. Hardly a day goes by without some mention of trade policy in the media. Some commentators, especially within the academic realm, try to make a distinction between free trade and fair trade. Others take the position that there is no such thing as fair trade apart from free trade (Bovard, 1991). Most authors, whether academic or media members, take a utilitarian position: if free trade is the best policy, it is because its benefits outweigh the detrimental or harmful effects. Alternatively, free trade works for the benefit of the majority - the greatest good for the greatest number.

Those who take a non-utilitarian position - those who generally tend to favour protectionism[1] - look only at those who are harmed by allowing free trade in some particular industry. They ignore the beneficial effects that a free trade policy has on other sectors and groups. Hazlitt (1946) warned us about this fallacy of looking at only one side of the coin as far back as 1946. Bastiat (1968) warned us to avoid this fallacy even earlier. The fact remains, however, that those who favour protectionism over free trade often fall prey to this fallacy of looking at only one side of the coin - looking only at how a particular policy affects one particular group - while ignoring the effect that the policy has on other groups.

The fact that economists take a utilitarian approach to trade questions is not surprising. Most economists are utilitarians. We do not deny that some insights can be gained by taking this approach, but utilitarianism is a defective philosophy in several respects (Rothbard, 1962, pp. 260-8). For one, it is not always easy - or even possible - to measure gains and losses. Textbooks use “utils” to illustrate welfare effects, but utils exist only in textbooks. They are useful to illustrate a point, but utils do not exist any more than do unicorns. Individuals decide on choice B rather than choice A because they prefer B to A, not because B is better than A by 23.4 per cent. Individuals rank their choices, they do not quantify them.

Another problem with utilitarianism is that it is not possible to determine whether the greatest good for the greatest number results if a small minority feels very strongly for (or against) a certain policy whereas a majority feels only weakly one way or the other. If two wolves and one sheep vote on what is for dinner, the sheep may have very strong views, but it may be outvoted. Utilitarianism does not do an adequate job of addressing this difficulty.

Although measurement is a problem inherent in taking any utilitarian approach, its main defect is that it ignores rights. Utilitarians do not even consider rights when attempting to determine whether a trade or any other ...