How Foreign Trade Restrictions Obstructs Economic Growth

In discussing the official complaint filed by the US at the World Trade Organization (WTO) against China’s rare earth export restrictions, Cato’s Dan Ikenson explains the adverse implications of trade restrictions. Mr. Ikenson writes, (bold emphasis mine)

USTR’s argument against Chinese export restrictions in the raw materials and Rare Earths cases are just as applicable to U.S. import restrictions. Removing restrictions—whether the export variety imposed by foreign governments or the import variety imposed by our own—reduces input prices, lowers domestic production costs, enables more competitive final-goods pricing and, thus, greater profits for U.S.-based producers.

Yet the U.S. government imposes its own restrictions on imports of some of the very same raw materials. It maintains antidumping duties on magnesium, silicon metal, and coke (all raw materials subject to Chinese export restrictions). In fact, over 80 percent of the nearly 350 U.S. antidumping and countervailing duty measures in place restrict imports of raw materials and industrial inputs—ingredients required by U.S. producers in their own production processes. But those companies—those producers and workers for whom Ambassador Kirk professes to be going to bat in the WTO case on rare earths (and the previous raw materials case)—don’t have a seat at the table when it comes to deciding whether to impose AD or CVD duties. (Full story here.)

Ambassador Kirk’s logic and the facts about who exactly is victimized by U.S. trade policies provide a compelling case for trade law reform, such as requiring the administering authorities to consider the economic impact of AD/CVD measures on producers in downstream industries—companies like magnesium-cast automobile parts producers, manufacturers of silicones used in solar panels, and even steel producers, who require coke for their blast furnaces.

Feel good protectionist policies does the opposite of what they intend to accomplish

Yet such policies have been imposed by vested interest groups, who uses the law (in cahoots with vote seeking politicians) to protect their economic standings at the expense of consumers and of the society. This is known as Rent Seeking.

Trade restrictions has significant direct and indirect (unseen spillover) impact to the economy.