Protectionism is a philosophy of international trade that suggests domestic interests are best served if domestic companies are protected against foreign competition. The economic lesson of comparative advantage demonstrates that both international trading partners are best served without trade restrictions. Comparative advantage shows tariffs and trade quotas protect inefficient firms, harm consumers and lower total productivity.


Suppose a car manufacturer in Sweden or Japan is able to market a high-quality vehicle at $15,000. At the same time, a car manufacturer in the United States can only market a high-quality vehicle at $20,000.

Unless the American manufacturer innovates, it is likely to lose market share to the Swedish and Japanese firms. Instead of facing market competition, the American manufacturer may lobby Congress to impose a $6,000 tariff on all imported cars.

This ends up creating a transfer of wealth from millions of American consumers, who pay artificially higher prices, to a concentrated number of American workers and shareholders with the car manufacturers. Very visible, and inefficient, jobs in car manufacturing are saved; invisible jobs are lost or never created elsewhere in the economy, resulting in huge opportunity costs.

Comparative Advantage

According to the theory of competitive advantage, it behooves the workers in the U.S. to concentrate on those areas where they are most efficient and trade for those goods and services where they are not efficient.

No matter how much more or less productive car manufacturers in the U.S. are than in other countries, Americans generate the most value by concentrating on their most productive industries. They can then trade some of that production for foreign goods. This creates the most goods at the cheapest prices.

This principle is most easily understood using a simpler illustration. An attorney discovers he types twice as fast as his secretary. This does not mean he should fire the secretary and type his own letters, since he may be 10 times as good a lawyer as the secretary. He should instead focus on legal services and then trade some of those wages for the services of the secretary.

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