The Costs of a Protectionist Cure
In recent years, many ailing US. industries have blamed their ill health on foreign competition and have sought a cure in limiting the flow of imports. While proponents of protectionist legislation argue that trade restrictions are necessary to protect U.S. jobs, economic theory indicates that protectionism may secure jobs at a substantial cost to consumers and economic efficiency. In capitalism, unlike in medicine, isolating the patient can cause the disease to spread. The Japanese Voluntary Export Restraint (VER) program, which restricts exports of Japanese cars to the United States, provides a useful example of such a costly cure.
The views authors express in Economic Commentary are theirs and not necessarily those of the Federal Reserve Bank of Cleveland or the Board of Governors of the Federal Reserve System. The series editor is Tasia Hane. This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License. This paper and its data are subject to revision; please visit clevelandfed.org for updates.