“Protectionism” is a very powerful word. In fact, simply evoking the word is capable of ending debate on any subject related to trade. Invoking the magic words, “You can’t do that, it would be protectionist,” settles all arguments.
Why, exactly, is protectionism so bad? Why can’t we have fair trade that lifts workers and protects the environment instead of unregulated free trade that exploits workers and the environment? Well, after spending time looking for evidence to support the “protection is bad” arguments what I find boils down to, basically: “Because it is. Shut up.”
Here is how it works, in the current discussions of how to fix the problems that led to the financial crisis there are established discussion-enders. Often the 1930s depression is invoked. For example, if you want to bail out big financial corporations and executives (and their bonuses) you say it was a “credit crunch” that caused the depression so we have to prevent another credit crunch. Booga-booga, end of discussion (even though lending is still declining even a year after the huge bailouts…) If you want to maintain low-cost import pressures to force low wages you say “protectionism caused the depression.” For other arguments, you can say it was unions that caused the depression, or perhaps government regulations, or perhaps taxes. You get the picture. Booga-booga, end of discussion.
By the same magical mystique, current trade and economic discussion rules prohibit ever, ever suggesting that the depression and hence the current economic problems (because of course they are exactly the same thing, just as Vietnam was exactly like World War II) happened because of:
• extreme concentration of wealth at the top,
• monopolistic and predatory corporate practices,
• wages and compensation that are too low for regular people to participate in the economy,
• insufficient taxation of the wealthy,
• exporting manufacturing capacity,
• unsustainable practices,
• encouraging people and businesses to borrow too much,
• coziness between government and wealthy special interests,
• insufficient regulation of corporations,
• or any argument that might result in people thinking that regular people should participate fairly in the economy or have a degree of control over the government and corporate practices.
So with these rules in mind I would like to address a few of the myths about protectionism that have grown into a “conventional wisdom” that always serves the interests of the wealthiest few.
Myth: Protectionism caused the depression or made it worse. Thom Hartmann addresses this very well, so I’ll leave it to him. In 2004’s, Democracy – Not “The Free Market” – Will Save America’s Middle Class, Thom wrote,
When conservatives rail in the media of the dangers of “returning to Smoot Hawley, which created the Great Depression,” all they do is reveal their ignorance of economics and history. The Smoot-Hawley tariff legislation, which increased taxes on some imported goods by a third to two-thirds to protect American industries, was signed into law on June 17, 1930, well into the Great Depression. In the following two years, international trade dropped from 6 percent of GNP to roughly 2 percent of GNP (between 1930 and 1932), but most of that was the result of the depression going worldwide, not Smoot-Hawley. The main result of Smoot-Hawley was that American businesses now had strong financial incentives to do business with other American companies, rather than bring in products made with cheaper foreign labor: Americans started trading with other Americans.
Smoot-Hawley “protectionist” legislation did not cause the Great Depression, and while it may have had a slight short-term negative effect on the economy (“1.4 percent at most” according to many historians) its long-term effect was to bring American jobs back to America. [emphasis added]
Myth: Protectionists are “against trade,” and the similar argument protectionism is about creating barriers or just keeping out foreign goods. This is a way to short-circuit the actual arguments that trade should be fair to both sides instead of just unregulated and exploitative. Fair traders want trade to be conducted in ways that are fair and respectful of working people on both sides of the transaction. They want people to be paid fairly and their working conditions to be safe and they want the environment to be protected. When trade is conducted this way everyone benefits in the long run.
Myth: Protectionism costs jobs. This scare-tactic is used by opponents of almost every policy that benefits working people. “Raising the minimum wage costs jobs.” “Taxing corporations costs jobs.” Etc. Fair trade policies would increase the number of jobs because the workers making the goods that we import would be paid enough to buy the things we make here.
Myth: Protectionism ties up manufacturing resources in outdated uses. This is a valid criticism of protectionist trade policies if those policies were enacted as the result of lobbying by interests seeking to protect themselves from competition that is based on innovation and increased efficiencies. This is a key point and I want to repeat it. Fair trade advocates oppose exploitation of workers or the environment. Fair traders do not oppose fair competition, and it is important that trade regulations reflect this.
There is no question, as I pointed out earlier this week in Myths of Protectionism: Stories You Are Likely to Hear in the Wake of the China Tire Trade Tariff Case that protectionism can be misused by wealthy interests to feather their own bed in ways that harm the rest of us such as by companies that protect their franchise from fair competition. I wrote,
As with all rules they can be manipulated by the currently-powerful. This was done to keep some prices unreasonably high, encourage monopolistic practices, reduce access to localized or regionalized specialties … So after we built up a manufacturing base the time came to start selling to others. This necessitated back-scratch trade agreements: you scratch my back by lowering your tariffs, we’ll scratch yours by lowering ours. Etc. And each country’s markets expand – as does the competition.
We always have to protect against wealthy and powerful interests seizing the government’s decision-making processes to further their own interests. That is just human nature. It is not an argument against the idea of having government and law, it is the reason it is necessary for us to be eternally vigilant of powerful interests and have systems and procedures in place to protect the rest of us. As with anything trade can be beneficial or harmful depending on how it is managed.
Fair traders want trade managed in ways that lift people and the environment up, increasing our standard of living and protecting the environment. Yes, we want to protect our workers and our manufacturing capacity but this is the key to prosperity and economic power. Wealthy interests are using trade as a way to pressure us to force lower wages, loss of benefits and removal of restrictions on polluting the environment.