Supporters of protectionism such as President Trump say that they are trying to save jobs in the United States. What’s wrong, they ask, with showing some solicitude and help to our own workers hurt by foreign competition? Surely we cannot be against that.
The standard reply is that these laws help workers but hurt local consumers and foreign producers and their workers. This causes a net deadweight loss, or unrecovered loss of social welfare.
But this reply, correct as it is, does not go far enough: Protectionist laws harm workers in our own country. This is because when a government protects an industry it aborts the creation of jobs in other industries. As the economy is unable to adjust to the efficiencies of production, resources are artificially directed to the less efficient endeavors. Those resources are unavailable to the industries that need them to grow. The government assists workers in inefficient industries by erecting trade barriers, but in doing so it harms persons who are now unemployed because new industries that would have employed them have been aborted by the strangling effect of those laws. Seen in this light, workers who benefit from protection are not deserving of transfers of wealth in their favor, because protection is harming other workers in that society. Just as the firms obtaining protection get rich at the expense of foreign firms, so the workers in protected industries keep their jobs at the expense of the poor, in their own countries.
In truth, labor unions (and their management) agitating for protection are crony capitalists. A crony capitalist economy is one in which success in business depends on close relationships between business people and government officials. Success here is measured, for workers, by keeping their jobs. But success is not only success against foreign competition. Protected workers coercively achieve success at the expense of similarly situated workers who have not enlisted the coercion of the state. The public easily believes that the business owners who obtain protection are crony capitalists. The truth is that their workers are crony capitalists too.