The New Protectionism?
With all the focus on off-shoring, out-sourcing, and now this article in the Washington Post by Senators Byron Dorgan and Sherrod Brown I can’t help but think we might be looking at a new era in which the idea of free trade takes a big hit.
The thing is that free trade doesn’t hurt, it helps. Sure free trade makes jobs in formerly protected industries more vulnerable, but that doesn’t mean that the people working in those industries become permanently un-employed. We’ve heard this kind of rhetoric before. Ross Perot claimed that NAFTA would result in a giant sucking sound as jobs fled south to Mexico. In reality, the reverse is the current problem: illegal immigration. More and more Mexicans and other latinos are coming into the U.S. looking for work. And oddly enough, the economic arguments against illegal immigration are themselves very similar to protectionist arguments. Then there is the idea of the “race to the bottom” in terms of wages and labor as put forward by Lou Dobbs (by the way, check out the link to see what an amazing hypocrite Dobbs really is),
“The fact is that we are seeing hundreds of jobs being outsourced on the basis purely of a corporation’s interest in achieving the lowest possible price for labor. Does that make sense to you?”
However, this is highly misleading. It isn’t solely the price of labor that firms look at. There is also the workforces skill set as productivity. Wages in developing countries are low in large part because productivity is so low.
But the thing is that we can’t prosper and protect jobs from competition overseas. It is like trying to prosper by moving to an isolated location and producing everything you need. While you might be able to do it, you lose out on specialization that comes with market economies. In international trade the idea of specialization is called comparative advantage and is the driving idea behind why free trade is a good idea. Think of it this way. If protectionism is a good thing for a country why isn’t a good thing inside that country? Why not give a specific firm in a given industry protected status in that it does not face tariffs that all of its competitors face? Why not create a single firm in each industry that way it can hire people and pay them lots of money in terms of wages which in turn will stimulate demand and thus bring about economic nirvana. If you’ve found the flaw in this domestic economic policy, you’ve also found the flaw for international economic policy.