Perspective: Protectionism never works

The story of American trade in the Digital Age is one of stunning success.

Our national commitment to the principles of openness and competitiveness has generated tens of thousands of high-paying jobs in a technology sector that is the envy of the free world. At the 2008 International CES (Consumer Electronics Show) in Las Vegas, we're witnessing first hand the amazing fruits of that commitment.

How then, in the face of this well-documented and ongoing success, are protectionists gaining so much traction by criticizing trade and calling for a return to a utopian, isolationist past that never was?

As it turns out, they're part of a long, if not proud, tradition.

Protectionists throughout history have had great success exciting passions by appealing to fear: fear of lost jobs, fear of cultural dilution, and fear of the other. Protectionist rhetoric is a proven vote getter, so it's no surprise to see it dusted off and trotted out like clockwork every election cycle.

What protectionists don't have is a track record of being right.

In all of the passionate antitrade polemic spewed forth in the coming months, you won't hear about the many instances of great historical successes in protectionism. Why?

Because managing trade and picking winners and losers is rarely the path to prosperity. One need look no further than the atrophied economy of North Korea for an extreme modern example of this failed economic ideology. Closer to home, our own forays into protectionist policies--most famously the Smoot-Hawley Tariff Act of 1930--have exacerbated some of our most crushing economic downturns. That dynamic remains very much in place today, and is supported by the most up-to-date economic evidence.

In its World Development Indicators 2007 report, the World Bank found countries that did the "worst" job of opening their borders to international trade witnessed substantial drops in gross domestic product, while countries that performed the "best" experienced sizable economic growth.

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In real terms, what that means to Americans is that a free trade environment provides American innovators with a global market for their ideas and products. It also ensures that American companies can continue creating the high-paying, highly skilled jobs that are most desirable to American workers. In 2005, the consumer electronics industry alone helped add 30,000 American jobs.

Free trade means that working Americans have access to life-changing technologies at affordable prices. In 1975, the average American household had one consumer electronics device. Today, that number has grown to 25. These are our computers, our mobile phones, our music players, DVD players, and televisions. Three-quarters of all American households with Internet access at home now subscribe to broadband Internet service--bringing the world into their homes at lightning speed. Imagine the impact on our quality of life and productivity if we were denied access to these devices or limited to only one.

From a global standpoint, trade--particularly in the high-tech sector--means development, access to information, spreading democratic ideals, and forging ties of friendship and commerce with developing nations. In a networked world, cell phones and Internet devices have become a prerequisite for informed global citizenship. Trade helps people in developing countries get the tools they need to participate and thrive and these tools are coming to life in Las Vegas.

Appearing this week at the International CES is a new approach to wireless networking--making it both affordable and simple to deploy wireless broadband access across neighborhoods and villages and an SMS-based information system that allows farmers to check the price of their goods--enabling millions of producers to know the true market value of their crops.

In the coming months and years, Congress and the American people will have a choice to make. Either we build on the progress we have made in the global marketplace by ratifying new bilateral trade agreements with Colombia, Panama, the Republic of Korea, and others, and seeking to reauthorize Trade Promotion Authority; or we turn back the clock, walling off America from the rest of the world and from the global markets that have fueled our success.

Some 140,000 people, including over 25,000 from 140 countries, will pass through the halls of the International CES this week, marveling at the latest technological advances, meeting colleagues, sharing ideas and striking deals. In many ways, it is a tiny microcosm of the global trading environment it represents. Just as Las Vegas benefits from being at the nexus of that environment, so too has the United States benefited from its leadership role in international trade.

The competitive global marketplace is not always pretty, or easy to navigate, but it is our best and only hope for retaining the global innovation leadership that has been such a boon for our country and its citizens. America is a great nation, and a great nation should not shy away from the necessary challenge of adapting and excelling in an increasingly interconnected world.

We should consider very carefully what abandoning that role would mean, before our hard-won gains are swept away by the rhetoric of protectionism and fear.

Biography
Gary Sharpiro is the chief executive of the Consumer Electronics Association.

More Perspectives

[rob.rallapalli]

Shapiro full o' Bunk.

My grandfather, a WWII vet, lived through the great depression as a young man, 25% or more unemployment, no jobs, soup lines, all of it. He said, without the war, it never would have gotten better, and from 1929 to 1939, it did not get better. Then came the war, government took the reigns of failing industry, set policy in trade and production, putting American ingenuity, hard work, and the application of science to industry first. That commitment to creating and producing products in the United States is what saved our nation and vaulted the US to the top. Today, the U.S. no longer has that commitment and is losing badly; however, our competitors in China, Europe, and India are doing what the US had done, and what the US should be doing. Using government policy, managing trade so that it is fair and beneficial to us (what Shapiro terms protectionism - our competitors term smart trade policy), investing not just in research (which is also sliding badly in the U.S.), but also investing in production of goods. Using low cost loans to industry, smart trade policy that benefits America as a whole, and creating a level playing field by recognizing cost imbalances in labor and environmental standards that must be balanced with tariffs to create a level playing field between trading partners. Shapiro is the classic example of failing US managerial talent. As far as one can see, the leaders of real industry are foreign peoples and companies producing the best consumer electronics on earth; then you look at the US that is producing nothing of note, has lost most of it's consumer product manufacturing base, and is now losing it's auto and air transport production, leaving nothing but a service economy with a shrinking base of people to serve, and a mass of poor to serve them - much like India and China have been until recently. People like Shapiro who are speaking for foreign producers who produce nothing in the United States, is lobbying to continue abusive and unfettered access to U.S. markets for foreign companies, leaving nothing to question that he and his ilk are un-american. Caring not for the U.S., but only his constituency. In an early day, he would have been labeled a traitor. The label surely fits.

[inachu]

RE: however, our competitors in China, Europe, and India

They are our our competitors as we are merging into the Amero/NWO movement.

[lbthedawg]

Go check out interest rates

Any student of economics will tell you and can prove that there is direct relationship between prime interest rates and values of a currency & goods of an economy. Go check out the current rates of the United States and their major trading "partners". For some reason Japan's rate is alone at less than one percent and has been for years. They deliberately devalue their currency as a strategic measure to protect their industries. Then they use other nations's debt at that nation's rates. It's brilliant until they accumulate too much debt. Which is almost now and has accelerated by China's growth.

Manipulation is protectionism in a backhanded way and the real problem is that ends up being subsidized by the market that pays the higher rates.

[pugster]

Protectionism does work

All the other countries use some form of protectionism to protect their jobs from some key industries. You don't see European countries buying Boeing airplanes. You don't see Japan buying American electronics. I'm not saying that we should do it for all the industries, but we should do it for the industries that can keep the high paying jobs here.

Take an example of the Steel Industry. Japan, Russian and Brazil has been dumping steel to us for less than the cost to manufacture at around late 1990's. Thanks to the Bush administration, they let it happen, thus US has to be forced to shut down and the US steel industry went down the tubes.

[suyts]

Check your years,

if as you stated "Japan, Russian and Brazil has been dumping steel to us for less than the cost to manufacture at around late 1990's." Then we would have the Clinton administration to thank. But it actually started before the late '90s.

[JadedGamer]

Two sides of steel

Yeah, Bush erected tariffs so that the FEW jobs in the lobbying steel production industry were helped - while threatening the MANY jobs in steel consuming industries which no longer could get steel at competitive prices.

Gee, how helpful. And the dumping claims, despite what Bush and the lobbyists claimed, were never proven by the way.

And the more such protectionist measures the U.S. uses, the less its arguments for free access to foreign markets will work.

[galacticcruiser]

Free trade created the West is common myth

It is a common myth that free trade is what helped the west and in particular Britain and America rise. What they did, cleverly, was manage trade to their advantage.

When in a position of dominance, they them promoted free trade (with pressure from domestic industries too). (China and India are doing that now.)

Free trade has no doubt been extremely beneficial for these and other nations (not discounting these countries' ability to influence international trade in their favor, mind you!), but to take these successes and transport them back into time is stupid, but many historians do that.

The author of the article would do good to read history that debunk the self-praise of what is referred to as "eurocentricism".

Of course, the author's position also biases his own view as free trade is good for his business.

[inachu]

Agreed! Shapiro is Bunk!

These people are the ones Dobbs call corporate eliteists who care nothing of their fellow man and do everything for the mighty buck. even if it means tanking of the dollar.

[RobertinOhio]

Another neocon in action

Sorry there Gary...protectionism has a pretty good track record in fact. If it was not for protectionism and exporting minerals and steel in the 1930s and 1940s, we would not have a automotive industry that ruled the world for almost 50 years.

Now thanks to NAFTA, CAFTA, and other free trade agreements, innovation and invention is taking place in other countries with scaling down of wages here in the US and all of those advances are being sold back to us as cheap products. Take a look at manufacturing and the current state of the auto industry here in the US if you think free trade is a good idea. I doubt an auto worker in Michigan would agree.

Other poor legislation like the Patriot act labels all non-US persons and now those people are being educated in schools outside the US and starting their careers there instead of here.

It seems you have a lot to learn about the economy actually works and how it affects other people on the wrong side of the free trade.

[sumwatt]

Go Back to the Peanut Gallery

The plight of an individual auto worker in Michigan is irrelevant. The problem is that you assume that everything should be held constant while failing to recognize progress - both technologically and economically. Ironic.

Before chastising Shapiro, maybe it would help if you really understood economics before launching into a Krugman-esque tirade calling people Neocons.

The truth is that there is no wrong side to free trade. The problem is that you are trapped within the confines of imaginary lines drawn at borders on maps. Free trade relies on two parties coming to agreement. The problem is that people like you insist on sticking your nose in affairs you have no direct interest in in order to protect your own selfish interests at anyone else's expense regardless of whether you're involved in the transaction or not.

How often do you go down to your state's border and protest the semi trucks full of stuff coming in that companies in neighboring states are profiting from? You don't because the state border is irrelevant! So why is the national border any more or less relevant? It isn't when it comes to trade.

[bemenaker]

What auto industry?

The one that sat on it's ass getting fat and rich, stiffling every sort of innovation possible until drug kicking and screaming into under threat of legislature? The auto industry that has imploded, because they never though to advance and change, because they had a false sense of security because they were protected by ******** laws, that once evaporated, they fell flat on their faces. Why? Because of they were used being fat and lazy and not having to innovate.

America was founded on being competitive and innovated. Since the 50's America has gotten slow and lazy and fallen behind versuses the rest of the world. America's problem is purely being driven for next quarter's profits for share holders, and not seeing the bigger picture. You have to look to the future if you want to survive. Next quarter is not the future, next quarter is the result of what you have already done.

[psulonen]

Counterexamples

China. Russia (post-Yeltsin). Argentina (post-default).

Read some Stiglitz, folks.

Oh, and... protectionism would probably not be a great idea for the USA at this time... but saying that "it never works" is demonstrably untrue.

[inachu]

typical method of neocons divide and conquer

Protectionism is what this country needs at this very moment. Once protection is wiped away I am sure people like you will usher in The Amero coinage and the death of America will be sure to follow. Everything is being done to weaken the USA economy to bring about an excuse to support the North American Union which again will be killed off to yet usher in a NEW WORLD ORDER.
Examining world hisotry shows us that the attempt to create a NWO has been attempted 6 times by other countries. Only by being a shyster selling out the american way of life can the Amero ever come about.

[CompEng]

Incredibly Poor Student of History

I don't have time at work to debunk this properly, but let's just say one has to have an appallingly poor grasp of history, especially in the 19th and early 20th centuries, to make such a claim.
The global winners have occasionally been those who shouted for free trade, but generally not those that actually applied it (so-called free trade as recently applied seems for most counties to be an excuse to con other nations into giving away their golden geese, except for the U.S. which is actually conning its own people). So-called free trade has provided the veneer of prosperity that we enjoy today, but there is no depth to that prosperity, since we have merely been consuming our past and future.
This does not mean we should not trade or interact globally. We should! Trade has many benefits. But trade must be regulated very carefully to make sure that the benefits of trade are shared well, and that the economy does not become so mobile and "efficient" that speculation and manipulation pay more than production. And organizations like the WTO are so corrupt and misused that they are little better than a joke in this regard.

[inachu]

WTO corrupt.

The height of the corruption was when Bolton entered the UN.
Anyone of Boltons caliber sure is currupt.

No more Bushism
No more Boltonism
No more Neoconism or Neocon think tanks
(every neocon think tank idea was proven wrong.)
No more Trotskyism or supporters of Kissinger,Wolfowitz,Rumsfeld

[retire57]

Check the trade deficit

Just look at the trade defict to answer the guestion of protectionism. Years ago we used to buy boatloads of junk and sell boatloads of bulldozers. They have taken our inventions and technolgy and produced a better product at a lower cost simply due to way lower wages and lack of enviormential protection standards. These are products that used to be made by american workers built in american factorys paying american taxes. We live in america and must protect our way of life as strongly as we protect our constition. With no factories there is no work, no work no wages, no wages no taxes, no taxes no america. How can we continue to take care of the rest of the world if we can't even take care of ourselves?

[lyntone]

Get rid of protections

Lets get rid of our millitary.
Protections don't work, see how silly that is?

[lyntone]

RECESSIONS

With recessions the government has in the past, reduced taxes and interest rates to get people to buy, causing the factories to re-hire and to end the recession. now take the factoris out of the equation, if the people start buying, who benifits,... the Chinese factories.
NOT AMERICANS!
VOTE FOR EDWARDS!

[suyts]

Hmm,

reduce taxes and lower interest rates. I believe that has been occurring in the last 7 years.

[ralfthedog]

We need a new Apollo program or Manhattan project.

Workers in the third world will never make what workers do in the United States or Japan. If we are to continue our standard of living, we must find a way to manufacture goods for the same price or less than China.

If the United States were to put the effort into automated manufacturing that we put into landing a man on the moon or building an atomic bomb, we could produce the same goods that are made by the third world for less money and at a far better quality (and far less lead paint in kids toys).

If the United States were to include Japan and Canada into this research, we could accomplish these results in less time for less money.

Unions have been afraid of automation for many years (Think Ned Ludd). Without progress in automation the Unions will have no jobs to be fearful of loosing.

I agree protectionism is a bad thing, however without protection, we must find ways to compete on an even playing field.

[lbthedawg]

Currency manipulation is protectionism

The author is right....sort of. But since Japan flaunts thier version of protectionism which is currency manipulation and they are getting beat up at home, yes it doesn't work. Can't see the manipulation? What's their prime rate? Is it UP to a half percent yet? When we drop ours again it will only be roughly ten times theirs. They are going to poop their pants when the returns they get out of looting our rates go away.

[Structuralist]

Protectionism is an means to an end

I don't think you were around in the 80's to make a comment to the effect that inflation lowers interest rates and spurs the job market. The only reason the economy turned in the 80's was that with industry still in the United States, the interest rates on home mortgage rose to double digit inflation. The only people who benefited where those who had money to invest since interest rates were inflated and a Certificate of Deposit was capable of earning over 10%, thus doubling every five years. However, if you were, like many of us, trying to raise a family, the manufacturing jobs started to go south as company's beinging in the mid-1970's cut back as much as possible on the overhead or "pork" that they were forced to satisfy investor profit margin competition by playing games with jobs, and with benefits. One example was was the honeymoon period that gave an employer six months or so to evaluate the employees capability before comitting on hiring and making it easier to lay a person off or replace him/her with lower priced labor.
This was the time when people were filing bankrupsy as dual family incomes (the first time that a family needed two full time incomes to make ends meet) were not sufficient. Furthermore, as manufacturing began it's move off-shore, the unemployment rate rose.
The end of Reaganomics led to a period of a lull in the market to allow for corrections, but those who were tied into high rates of return with CD's were soon to find the interest rates dropping as the Feds found it necessary to control escallating high rates of cedit card interest and bank loan interest. Remember what we gave up in the middle class. Interest rates paid on credit cards was a deduction that was finally ended during Reagan and Ford. The Unions were at a losing war with off-shore relocation of the assembly plants were labor cost was reduced and the only reason that the market turned around in the 90's under Clinton was that the market was artifically inflated on technology - selling stock like it was artwork without consideration for the cost/vs/rate of return. The science is called Linear and dynamic programing. There is defined line where profits are maximized and inventory is controled so that no product remains longer than necessary to take up valuable warehouse space in order to bring the greatest rate of return.
With that said, the artificial inflation under Clinton who pushed for the failed NAFTA and CAFTA made way for Globalization that was considered an unstopable snowball rolling downhill.
Once you cut back as much as is possible, the only think left is to remove benfits and to do this requires a company to avoid hiring fulltime. In every service industry, technology allows for the outsourcing of labor to lower income countries.
The question to ask is who is going to compensate the middle class for the debt that they are consistently sold in advertisments, variable loans that are given on housing that escallate in interest or that cost the owner in points.
While other countries are benefiting from Globalization, the one industrial nation has no industry left to realize the effect of inflation but to feel the squeeze as wages are forced down, the cost of education exceeds the ability to pay it back from the degree earned and the lack or reduction in health care.
Those who favor Globalization in technology are generally investors with assets or are those who are fortunate enough to have high incomes to invest off-shore in International Companies.

I resent those who write about how Protectionism never works while they invest in labor and assmebly in third world countries that take a 50 year setback from what the labor industry in first world nations have attempted to achieve - better working conditions and a living wage.

The root of this is greed and the only way in an economic democracy to control greed is through protectionism. The problem is that while Chindia (the latest name for China / India lower income labor) is that they think they have a future. When their standard of living rises, the Global Corporation that needs to maintain consistent profits will move to new markets such as the Middle East or Africa and leave Chinda in the same situation as America and Europe.

The only hope is to rebuild the industry from manufacturing throw-aways that are assembled in other countries and become the hazardous waste of India, Asia and Africa (see the articles in National Geographic on the salvage of printed circuit boards for the led and other metals used in the waste that comes from the throwaway cell-phones, computers and other disposable technology. India eats from the same pots they melt the lead from solder down to sell back to other countries that can reuse it at the risk of lead poisoning to those who survive from the little work they can get.

If the US and Europe took the discardable materials and refurbished them to sell at affordable prices then the industry in developed countries that were hurt by Globalization can be recycled, however, when the investor is isolated from the problem it is the same as the warrior who found that the knife was too close and personal for those who did not have the stomach for killing while guns and explosives were easier to use when you did not have to get close to those you hurt.

Protectionism only fails because of the greed of those who believe that the poor without income will benefit from products they can not afford to purchase which are intended to enhance their lives. A lie is still a lie no matter how much you sugar coat it.

LQEngineer

[chuckbr]

Even scale

Free trade may be viable if the global economy was on a global economic base, the world shared a common currency and the world has the same social values. These requirements are not met. Therefore "free trade" will not work.
Economist the world over may try to say the world bank is the solution to varying monetary values, but politics get in the way. Our country and our President are disliked the world over, hence we are not treated as an equal trading partner.
Isolationism does not work, therefore we must change our perception in the eyes of the rest of the world. We must stop being the "ugly American", which we are and have not tried to change. In addition, in our isolationist ways we need to become better negotiators. We are the world suckers and pay the price in international negotiations.

[photog_7]

Only if you support slave labor and pollution

What our government has done (both parties, BTW)is allow greedy US corporations to move nearly 100% of manufacturing out of the USA to countries where young children work 84-hour 7-day work weeks, there are no polution laws, and safety is not an issue. In addition to all electronics manufacturing, this includes all over-the counter drugs, and increasingly, our food supply. If you think of this as a great success story, you are out of touch with reality.

[milo2519]

Corporate Lobby

This stupid old political argument again?
Apparently if you want to protect your children from Chinese made lead based toys, you are also a "protectionist" according to the corp.lobbyists on cable news. Ugh!!

[mbal]

protectionism

In 1975 there were no home computers,I-pods etc.
Maybe if we put tariffs on products that American companys started making overseas they would reconsider and manufacture here again.This global economy is hurting our tax base through lack of good paying jobs and people having spendable income.

[gmlandgal]

Protectionism is a Good thing! The last time I looked this was the United States of AMERICA. Have I missed something?
Is it now the new world order? Our Country should Always come first!
If my neighbors house and my own caught fire at the same time should I go and help them with their fire before I make sure my own family is safe?
If my neighbor and I lose our jobs the same day and I only have enough money to buy dinner for my family tonight should I go get the neighbors and feed them also? Or should I let my family eat and if there are leftovers, take them to the neighbors?
My Family / Country should always come first.
While I understand that there is a crisis in the World at this time, it is not the responsibility of the United States of AMERICA to take care of them before taking care of Ourselves First!
I am also one that refuses to buy foreign goods. I will not support the export of American jobs to overseas markets just to make Corporate America More Money!!
I hear some people saying foreign good are better made and cheaper, what bull ****! Look at Anything in Any store right now, it is mostly poorly made. Besides being Dangerous! From melamine in our pet food which was killing our pets, to fatal L-tryptophan imported from Japan and lets not forget the Aqua Dot toy that was putting children into comas, imported from China.
And there is the Lead found in Children?s clothing and toys imported from China and India.
I see clothing in high end stores that look like the five year old was doing the sewing. Pots and pans that are made with thinner and cheaper metals. I could go on and on. I defy anyone out there to dispute this.
The United States of America has stricter regulations on goods made in the U.S. Better made and safer to the consumer. While I agree that the products made in this country are more expensive, But the blame for that lies with the Unions which overstepped the bounds of reason and Corporate GREED.