Market Correction

27 January 2008

Editor, The Baltimore Sun

Dear Editor:

Among Colin Lewis's recommendations for strengthening America's economy is to "Heavily tax or ban foreign imports" (Letters, January 27). He's mistaken. Congress infamously tried this tactic in 1930 with the Smoot-Hawley tariff. Economists agree that this move worsened the Great Depression.

One reason such protectionism fails is that, as happened in the wake of Smoot-Hawley, other governments respond by raising their own tariffs, thus dampening demand for U.S. exports. More fundamentally, because protectionism reduces the amounts that foreigners sell to Americans, it reduces the amount of dollars foreigners earn to spend and invest in America. As foreign spending and investing in America inevitably declines in response to higher U.S. tariffs, American industries whose markets are supported by foreign spending and investment decline. Workers in these industries are laid off.

Mr. Lewis and other protectionists forget that foreigners sell things to Americans only because these foreigners want either to buy things from Americans or, better yet, to invest in America.

Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University