Courtesy sqrpix
There is a tendency today towards domestic protectionism and while it is not surprising, it is also not wise. Using the U.S. as an example, those with global marketing experience know that a “buy American” attitude will cost the U.S. and the world billions of dollars and reduce the number of jobs. The U.S. needs the companies from other nations with facilities in the U.S. to continue to pump money and jobs into the economy. These companies should be welcome to do so, particularly when they create products Americans want at an affordable price.
Conversely, when an American company ventures abroad, it wants its contribution to another country’s economy to be welcomed, not feared. The reception it receives in those countries will be driven by the openness the U.S. offers outside companies. Every time a U.S. firm loses business abroad because of retaliation for American restrictions, the economy suffers. Keeping the U.S. open to trade will avoid a new global battle of trade restrictions that will undo decades of effort by corporations and governments to eliminate the trade barriers that keep businesses from thriving.
Recent economic recovery plans in the U.S. and abroad have provided both an opportunity to send a signal to markets about what they can expect in terms of U.S. trade, and a chance to reassert U.S. leadership on a global stage. Discussions of U.S. economic improvements must go beyond domestic issues and include a focus on global recovery. Countries must be willing and able to buy each other’s goods – in increasing quantities – if economies are to blossom. Financing is key to their success, so recovery plans that include governmental efforts to help companies finance overseas ventures, including providing buyers with credit, will boost the domestic economy as well.
What do you readers feel about protectionism? Is it always wrong or do you think, as some do, that it is necessary in this period?
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F.Scott Fitzgerald wrote that “the test of a first class mind is the ability to hold two opposing views in the head at the same time and still retain the ability to function.” I strongly prefer trade liberalization to protectionism in U.S. international trade policy and in relation to the “Buy American” provisions of the stimulus package, but there may be need to consider some sectors of the U.S. economy as vital to national interests and requiring special consideration.
Protectionism in itself is a self-defeating approach to international trade. It rewards inefficiency and leads to reciprocal measures by other nations thus decreasing international commerce. Since international commerce is critical to all nations and and significant businesses, protectionism depresses economic expansion. Many inefficient businesses and selfish interest groups hide behind protectionsim rather than acknowledge the broader societal benefits.
At the same time, the WTO allows nations to protect their national security interests. Article XXI of the General Agreement on Tariffs and Trade (GATT), states that a country cannot be prevented from taking any action that:
“it considers necessary for the protection of its essential security interests…relating to the traffic in arms, ammunition, and implements of war and such traffic in other goods and materials as is carried out directly for the purpose of supplying a military establishment (or) taken in time of war or other emergency in international relations.”
So, what does “other goods and materials” mean in relation to U.S. industries? It certainly applies to aircraft manufacturers and information technology. It has also been used to protect industries like textiles and apparel, somewhat disingenuously. But, with the U.S. manufacturing base diminished by business access to more efficient production platforms in other parts of the world, is there legitimate justification for a broader application of the national security interests provision?
What do you think?