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Home | Blog | Trade Barriers, Outsourcing, and Economic Development (lecture 27 of 32)

Trade Barriers, Outsourcing, and Economic Development (lecture 27 of 32)


These notes are from the lecture Trade Barriers, Outsourcing, and Economic Development, given at the Mises University. Any errors are mine, feel free to point them out so that I can correct them. This lecture was given by Prof. DiLorenzo.



  • Outsourcing is a big issue, although less than 1% of the job-force is outsourced.


  • Tarriffs had a very big impact on the cause of the Civil War


  • "If goods can't cross borders, armies will" -- Bastiat


    • Free trade is conducive to peace.
    • Trade-barrier are conducive to war.
    • If people can't enrich themselves by peaceful means, they will do so through violent means.


Tarriffs, Quotas, and Trade-Barriers

  • The effect of tarrifs are a regressive tax, effecting the poor more than the rich.


  • X-inefficiency -- means monogenial laziness; with weaker competition, managers won't be as efficient, won't cut costs as much; the same amount of goods will be produced, but using more resources.


  • Tariffs cause rent-seeking -- income transfer from consumers, competitors, tax-payers.


  • The more time you spend pursuing rent-seeking (income-transfer), the less time you spend working, investing, producing wealth. This is waste.


  • Reduces the size of the market, hinders the division of labor.


  • Tariffs reduce innovation.


    • With no competition, there is no incentive to make better products.
    • Increases costs.


  • Pass-through effect -- tariffs have disproportional effects on export-dependent areas; the extent to which they can pass on the costs of the tariff:


    • Tariff is an indirect tax on exports through imports.
    • If restrict the number of dollars that leave the US to other countries, we restrict foreign investment.


  • Retaliation against tariffs:


    • Smoot-Howley tariff, passed in by Hoover. Raised the average tariff rate around 45-50%. US exports had declined by 53% in 1932.
    • These tariffs strengthened the Japanese Fascists, just like Versailles strengthened Hitler.


  • Quotas produce similar effects, though there's no government revenue.

Voluntary Export Restraints


  • Japanese "voluntarily" agree to restrict exports to the US.


  • As a result of this, the average compact car was $2,500 more expensive than it would have been.


  • This was a lie by the Reaganites, so Reagan didn't seem like the anti free-trade Fascist he was. (disclaimer: I am uncertain as to whether this is Prof. DiLorenzo's statement, or my own addition).


  • There was a 5-year agreement.


  • After the 5-year agreement, the Japanese came back tot he US and asked to renew the contract.


  • The same thing, if done privately, would have been prosecuted under the Sherman Anti-Trust Act. Of course, they weren't prosecuted, because they were a part of the State.

Domestic Purchasing Requirement


  • Required to buy only things with parts in them that are domestically produced:


    • Requires a certain percentage of the content to be domestic.
    • Basically, no-one with yellow skin.


  • Alternatively, may require the product to be produced domestically.

Foreign Imports Restrictions




  • "Quality standards" for imports.



  • Hayek -- "If you want the benefits of competition, then you have to realize that when your time comes to adapt to changing economic conditions, you have to adapt and not lobby for protection."


  • Companies are reducing costs, which results in lowered prices through savings.


  • Stimulates US exports.


  • "Downsized jobs" are often the result of technological improvement, which leads to other types of jobs being created.


  • A small percentage of people are employed in these industries.



  • Supports reimportation of drugs.


  • Patents are a monopoly.


  • FDA hinders production/marketization of drugs.

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