By: Dominic Pino – nationalreview.com – March 27, 2025

And protectionism is a utopian dream.

Every free trader has heard it: Sure, we’d all love for there to be free trade, sounds nice in theory, but in the real world it can’t happen. Supposedly free trade is a utopian position, and protectionism is the pragmatic, realistic alternative.

This common framing of the issue of international trade is exactly backward. Protectionism is a utopian theory based on the assumptions that individuals and businesses will act contrary to their self-interest, government will act in the national interest, and special interests will stay on the sidelines. Free trade is how you live your everyday life.

In The Wealth of Nations, Adam Smith endeavored to show how people acting in their self-interest could benefit others. The mechanism by which that happens is the division of labor. When people specialize in what they do best and trade for the rest, they make themselves and the people they trade with richer than they would otherwise be.

This insight lies at the heart of economics. It is not obvious in the abstract, but experience has shown it to be true. Countries where people don’t specialize and trade — countries where people grow their own food, make their own clothes, build their own houses — are the world’s poorest. The country that elevated self-sufficiency to a foundational national principle and has almost completely isolated itself from international trade — North Korea, with its Juche ideology — is a communist police state.

North Korea has to be repressive to prevent trade, because trade is natural to human beings. “In almost every other race of animals each individual, when it is grown up to maturity, is entirely independent, and in its natural state has occasion for the assistance of no other living creature,” Smith wrote in The Wealth of Nations. He imagines the absurdity of dogs deliberating over trade in bones.

“But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only,” Smith wrote. “He will be more likely to prevail if he can interest their self-love in his favour, and shew them that it is for their own advantage to do for him what he requires of them.”

This is the first area where protectionism’s utopianism shows. Protectionism says that the natural human regard for self-interest that undergirds trade is actually a disease in need of treatment. It posits that people need to act contrary to human nature to really thrive and that therefore their desires and preferences must be reformed.

The agent of that reformation is the government. Protectionists must hold a very idealistic view of government and must place an extraordinary amount of trust in government to execute their plans. If the government is not as competent or as beneficent as they believe, their plans won’t work.

The protectionist believes that government is the right agent to cure the supposed disease of self-interest because it can take the entire country’s interests into view. Government transcends the concerns of individual people and businesses and looks out for the good of everyone. It lacks self-interest and holds national security and prosperity as its aims.

This is a very romantic view of government. It’s hard enough to get the government to focus on the national interest in military matters, which is the most fundamental purpose of government, and military members have sworn oaths to renounce their self-interest and serve the country. Citizens at large have sworn no such oath, nor in a free country should they be expected to, and government is very unlikely to be able to redirect their economic activity for their benefit.

It is not an unfortunate side effect of tariffs and other trade restrictions that they benefit some people and industries over others; that is their purpose and goal. Tariffs are, by their nature, redistributive. They redistribute between industries by reshaping patterns of trade and their associated flows of money. Because they are a tax, they also redistribute money from the private sector to the public sector.

The protectionist must have faith that government will pick the “right” industries to benefit for the good of everyone. This is supposedly based on careful analysis of national security needs, the benefits of job creation, the balance of trade, the trade practices of other countries, the government’s revenue needs, and other factors.

Even if this analysis is done competently and fairly, these goals will conflict, and the analysis will not recommend a clear course of action. For example, the only reason the U.S. has a trade deficit with Canada is the large amount of energy we import from our northern neighbor. Excluding energy trade, the U.S. has a trade surplus with Canada. Crude oil from western Canada trades at a steep discount on global markets, in part because it is relatively difficult to refine and transport. Several major U.S. refineries are specially built to process western Canadian oil.

Though Canadian oil imports are largely responsible for the U.S. trade deficit with Canada, they probably reduce the U.S. trade deficit with the rest of the world, because the refined products that we export are more valuable than crude oil. Canadian oil imports are widely viewed as good for national security, since they have largely supplanted imports from the Middle East, but they are still outside the United States’ jurisdiction and could be cut off in a war. Restricting Canadian oil imports would cost jobs at the U.S. refineries designed for them, but those businesses exist only because the Canadian oil is allowed to come into the U.S. at a discount and undercut American crude oil producers.

So what’s in the national interest with respect to Canadian oil imports, from the protectionists’ point of view? Their superficially sophisticated view of trade and the national interest can be used to talk people into just about anything. And if people can be talked into just about anything, then some people will be willing to spend lots of money to talk government officials into the thing that benefits them.

The word for this practice is “lobbying,” and it is an integral part of protectionism, not an unfortunate side effect. Trade restrictions by the U.S. government are usually legally required to take into account comments from the public, which includes businesses and trade associations. Even if they weren’t, the First Amendment guarantees the right to petition the government for a redress of grievances. Protectionism in a democracy will always involve special interests.

There’s also the simple fact that trade associations often have the best information about the industries they represent. When the government is doing its analysis as protectionists want, it will be reliant on potential beneficiaries of the policies it is crafting. This obvious conflict of interest is ripe for exploitation.

The protectionist case rests on the belief that people in government will ignore these special interest groups when they are arguing against the national interest. But of course, when making its case before the government, every group will argue that its interests are in the national interest, so politicians will have cover to decide however they want.

Politicians also have a way of arguing that the national interest coincides with their own political considerations. And so it’s probably not such a mystery why domestic steel firms are the top beneficiaries of protectionism in recent years. (It’s not national security: The secretary of defense said in 2018 that the military needs only 3 percent of domestic steel production, and during the wars in Iraq and Afghanistan, the Pentagon procured specialty steel from foreign producers to build vehicles to protect soldiers from roadside bombs.) Both major-party candidates in 2024 were basically running to be president of Pennsylvania, known for its steel industry and powerful steelworkers’ union. The candidates knew that whoever won that highly competitive state and its 19 electors would be very likely to win the Electoral College, and they acted accordingly.

Political decision-making is the rule, not the exception, for politicians — that’s their job. It’s naïve to pretend otherwise. But protectionists must pretend otherwise, or else their plans have little chance of working.

It’s possible to design an academic case for tariffs. Economics textbooks often mention an “optimum tariff,” with supply–demand graphs to illustrate. It posits a scenario where a country has monopoly power over a particular good, so other countries will not retaliate with their own tariffs, and the tariff is set at a low rate, calculated to improve the terms of trade with the rest of the world without raising prices too much domestically. It works on paper, and it’s important to note as a theoretical exception, but it hardly resembles any real-world tariff and certainly doesn’t justify blanket tariffs on all goods from entire countries.

Economist Stephen Miran has created an academic case for tariffs in a paper titled “A User’s Guide to Restructuring the Global Trading System.” He argues that the U.S. dollar is overvalued because of its status as the world’s reserve currency, which makes U.S. exports unduly expensive for others to buy. He devises a scheme of tariffs, deregulation, and currency actions to rectify this perceived wrong.

It might work on paper, and Miran’s advocacy for tariffs earned him a spot in the government as the chairman of the Council of Economic Advisers. But even putting Miran in the government has not led to Miran’s ideas being executed as he described.

Miran in his paper says that because Trump has “a history of caring deeply about financial markets,” a second Trump administration would be likely to “take steps to ensure” that “large structural changes to the international tax code occur in ways that are minimally disruptive to markets and the economy.” He writes that, “to help minimize uncertainty and any adverse consequences of tariffs, the Administration can use credible forward guidance, similar to what is used by the Federal Reserve across a range of policies, to guide expectations.”

Instead, different administration officials have said different things at different times, leaving businesses bewildered about what to expect. The president announces changes in tariff policy in all-caps social media posts. The confusion has spurred large sell-offs in the stock market, and U.S. markets have been consistently underperforming European markets since Trump’s election.

Miran also advocates phasing in tariffs gradually, subject to clear conditions. He suggests in his paper that Trump’s promise of a 60 percent tariff on Chinese goods be accomplished by making a list of demands of the Chinese government and then increasing the tariff rate by two percentage points per month until the demands are met. This is not how the administration has acted, either.

“There is a path by which the Trump Administration can reconfigure the global trading and financial systems to America’s benefit, but it is narrow, and will require careful planning, precise execution, and attention to steps to minimize adverse consequences,” Miran concludes. He is sensibly modest about the chances of following that path and states in the paper that it is “not policy advocacy” — likely because he does not hold the utopian view that government will act as an economic practitioner fine-tuning the world economy for the good of the country.

Again, protectionism is the utopian view that individuals and businesses will act contrary to their self-interest, government will act in the national interest, and special interests will stay on the sidelines. That doesn’t happen in real life. Free trade, on the other hand, happens all the time.

The Constitution prohibits the states from levying tariffs on one another, which effectively created the world’s largest free trade zone when it came into effect in 1789, growing as the country expanded. Internal trade barriers were common in other countries at the time of the Founding, and they still exist in some countries today, including Canada.

If the protectionist argument is right, why is it right only for countries? Many U.S. states are larger than many countries, so it’s not a geographic or population issue. It’s not as though there isn’t significant variation in wealth between states: Massachusetts has roughly double the GDP per capita of Mississippi and an average hourly wage over $14 higher.

If anything, the case for protectionism between the states should be stronger than between countries because it’s much easier to move production to another place under the same laws where the people speak the same language and have access to many of the same public goods than it is to train new workers on a different continent. The manufacturing center of the U.S. has in fact moved: historically, from the Northeast to the Midwest, and now, from the Midwest to the South.

If the Constitution didn’t prohibit it, should Massachusetts have tariffs to protect its workers from Mississippians? Maybe some protectionists would be consistent, but it’s doubtful. When the level of analysis is changed from international to interstate — or, even more absurdly, intercity — it’s clear that free trade is superior, even though it will also result in job losses for some people as production moves from place to place.

Trump gives away the game on this when he talks about how tariffs would disappear if Canada became a state. He’s right, they would, but that would mean that the same people would be buying and selling the same stuff, so the basic economic picture wouldn’t change at all. The biggest difference would be that around 30 million Canadians would be voting in U.S. elections, swinging our politics sharply leftward. It seems better to have the economic gains without the political consequences by having a free trade deal with Canada, which is exactly what the U.S. has done, starting under Reagan in 1988.

In your day-to-day life, you run up enormous trade deficits with the grocery store, the gas station, restaurants, and Amazon. They take your money and give you stuff, and you never give them any stuff in return. This is a good deal for you because it means you don’t have to can tomatoes, refine oil into gasoline, learn how to make Indian food, or build your own toasters, televisions, and tables.

There are of course things that you think are important that you keep “in house,” your familial “national security” exceptions, as it were. But there are plenty of very important things — food, water, children’s education, religious services, home security — that the vast majority of families “outsource” to others, and it works fine because that’s a normal human thing to do. You probably outsource more in your day-to-day life than the U.S. does at a national level. For all the talk about how “we don’t make things here anymore,” imports of goods and services equaled only 14 percent of U.S. GDP in 2024, one of the lowest rates of any developed country.

Rather than make more stuff on your own, you specialize in the job you want to do and get money for it. When you take that money into a furniture store, it functions as a certificate that says, “I did the work required to have this couch, but I did it doing something else I’m better at than couch-making, and other people paid for my work, so you should let me buy this couch in exchange.” You exchange the money for the couch, and both you and the furniture store are better off, with your labor magically transformed into something you didn’t make.

That’s free trade. You were free to go to that store or to a different one. If you weren’t, that lack of competition would be considered a problem, and it might be against the law. The government doesn’t tax you at a higher rate in one store than it does in another, regardless of whether anyone feels bad for the store’s workers or because the store’s owner donated to a certain politician’s campaign. Nobody seriously believes that the government could “restructure the furniture store system” in such a way that everyone would be better off.

The argument for free trade doesn’t require a suspension of disbelief, which protectionists need to make their arguments. You can accept human nature as it is, and you don’t have to believe that the government is a benevolent planner that can make the country richer, safer, and fairer by taxing imports. In other words: Sure, we’d all love for there to be protectionism, sounds nice in theory, but in the real world it can’t happen.

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Source: Free Trade Is How You Live Your Life | National Review