Decades of multilateral effort and untold resources have been devoted to freeing up global trade flows. Enter a severe recession, and suddenly all that effort is at risk. Protectionism, the arch enemy of international trade, is in vogue again. There are at least 10 reasons to spurn the movement.
1. International trade was a key driver of global output in the last economic cycle. The world economy grew at an average pace of 4% since 1999, but at the same time, exports expanded by 6.5%. As a share of GDP, trade increased from under 40% in 1990 to 65% in 2007. Why undermine that record?
2. The same phenomenon is a key job generator. As trade has become an increasingly larger part of the global economy, the number of trade-related jobs has also grown. By the numbers, jobs directly connected to international trade likely rose much faster than the rest, now accounting for at least one-third of total employment, up from just 20% in the early 1990s. Should we mess with that success?
3. Technology has made trade with every part of our planet feasible, enabling exploration of efficient business solutions worldwide on a scale that has never been possible before in human history. Moreover, recessions tend to urge this process forward. Taking these facts together, it is possible that protectionism has never been more of a threat to world prosperity than it is today.
4. Protectionism never happens in isolation. It breeds further (retaliatory) cost-hiking protectionism.
5. Firms shielded by protectionist walls tend to become less productive and efficient over time.
6. The resources required to enforce protectionist measures could be better employed elsewhere.
7. Many multinational firms make most of their sales outside their home country. These sales are put at risk by retaliatory measures provoked by their home country’s protectionist trade actions. More than ever, ‘us-first’ trade policies actually put at key risk a substantial number of good jobs at home.
8. Recent high profile protectionist measures were enacted to maximize the domestic impact of anti-recessionary stimulus measures. That might make sense if only a few economies were engaged in stimulus, but most have joined the fray, negating the perceived need to disrupt trade flows.
9. Protectionism is essentially antagonistic, creating unnecessary bi- and multi-lateral tensions.
10. Who bears the cost of a country’s own protectionist measures? The very ones it is purporting to protect – it’s own consumers. These are the ones that have to pay the higher costs of tariff-protected goods and services, eating up income that might have been invested in the domestic economy, or spent on other home-grown products. A recession-prolonging inefficiency tax that makes little sense.
The bottom line? The list goes on. Sadly, protectionism will likely always sell well in an economic trough, but its scant, temporary benefits, weighed against the incalculable gains of globalised trade, hardly register. Our hope? That when the economy recovers, these policies will be fast forgotten.