The Perils of Protectionism

The general idea of protectionism is based on a notion that somehow banning or restricting trade will benefit society or a particular industry. The Encyclopedia of Brittanica defines protectionism as a 

policy of protecting domestic industries against foreign competition by means of tariffs, subsidies, import quotas, or other restrictions or handicaps placed on the imports of foreign competitors. 

It is easy to dismantle such economic fallacies as protectionism using the logical method of reductio ad absurdum. For example, if restricting or banning trade with China is good for the economy and some industries in India then similarly – stretching the same logic further to its end – it is also beneficial if Assam stops or restricts trading with Gujarat or Maharashtra; in general one state of India stops or restricts trading with another. But why stop at the boundaries of states? Let us go further and restrict or ban trading between two cities inside the state e.g., will it not benefit the industries of Ahmedabad if the Ahmedabad government bans or restricts trading with Surat or Baroda or Rajkot? According to the reasoning of protectionism’s supporters it should. Why stop at the borders of cities? We should restrict or ban trading between one area of a city with another area e.g., will not the traders of Ellis Bridge area in Ahmedabad benefit if they stop trading with the traders of Ambavadi? And on and on stretching the protectionist logic further, will not an individual benefit if he/she stops trading or exchanging anything with the other individual? That will be the perfection of the protectionist utopia. That will be true ‘Atmanirbharata (self reliance)’ that the Indian government is pursuing right now. 

We can easily imagine the consequences of such protectionist policies. The end result of following protectionist policies will be misery, hunger, and death for everyone including the politicians like Prime Minister Narendra Modi or Finance Minister Nirmala Sitharaman. In such protectionist utopia we will all have to go naked and hungry without food and live outside in the open without a roof over our heads. This is because we all cannot produce everything on our own that we want to consume in our day to day life. Imagine a pencil that we want to use for writing. Can we produce that pencil on our own? As Leonard C Read explained in his important article I, Pencil, we cannot. A simple product like the pencil involves production and trading on a global scale. Without trading with others we will never be able to produce even a simple product like a pencil. Trading with everyone makes us rich. Trading and ensuing specialization and division of labor are the underlying foundations of our modern lifestyles. Progress and civilization depends on trading. 

Restricting or banning international or national trade will only harm all of us. Protectionism will make us all poor when politicians ban foreign and national trading. The textile businessmen of Surat city – an ancient city of textile and diamond businesses located on the bank of Tapi river in the state of Gujarat – are finding out this cardinal truth right now. A few days ago the BJP government of Assam announced that they are banning the import and sale of mekhela sador and gemusa forms of saree from Surat to promote their local textile industries. The Indian Express reported, 

The Assam government’s restriction on the sale of ‘Mekhela Sador’ and ‘Gamusa’ produced by power looms has caused panic among the Surat power loom weavers. Almost 60% of Assam’s usage comes from the Surat Textile industry, which has always been a significant supplier to the North Eastern state.

According to the Surat Weaver Association, the future of more than 1200 small and large-scale weavers has been put in jeopardy. In addition, trade worth 500 crores has also been put in danger, with more than 150 crores worth of ready-made items and over 200 crores dealing stuck.

Assam’s government outlawed Mekhela Sador sarees made in Surat, Gujarat, on February 28. 

Unfortunately this is the same Surat textile industry which was cheering the ban on Chinese textile imports in the past e.g., in 2012 when then government banned the import of second hand Chinese textile loom machines, Surat textile industry leaders welcomed that policy move by saying it will benefit the local manufacturers of those machines! In 2018 the silk weavers of Varanasi cheered Modi government’s protectionist policy of imposing heavy import duties on Chinese silk items. The same Surat textile industry celebrated a ban on Chinese circular knitted polyester cloth. 

But now when the BJP government of Assam has banned the import of textiles from Surat these same businessmen are fearing job and revenue losses! They are reaping what they sowed when they cheerfully supported government’s ban on Chinese and other country’s products which they are manufacturing. Just like most businesses in India, they want all the benefits for themselves but they do not want to bear any cost. But that is not possible. When Surat textile industry is living by the sword of protectionism it will also get harmed and die by the very same sword of protectionism which is now hanging over their heads. 

Surat textile businessmen are now finding out the perils of protectionism. I hope they will now understand why it is important to trade with everyone freely and why it is dangerous and harmful to restrict trade. Surat businessmen should embrace free market trading and get ready to face international competition instead of meekly hiding behind government’s protectionism. Protectionism has only made them weaker. They should not only lobby the government to lift the ban on imports by Assam government but they should also pressure the Modi government to lift all foreign trading bans if they want a better future for themselves and for the country at large.