The Ugly Side Of Protectionism In The US

The Ugly Side Of Protectionism In The Us 1the Ugly

Protectionism is the act of a government regulating the presence and operations of foreign companies and organizations operating within its borders to shield its domestic industries. It typically involves imposing high tariffs and levies on foreign goods to discourage foreign competition. While sometimes motivated by the desire to protect specific industries, protectionism can generate negative effects on a country's overall economy. The debate revolves around whether protectionist policies benefit or hinder national economic growth, with many experts arguing that long-term consequences tend to be detrimental.

In the United States, recent shifts toward protectionism under President Donald Trump have included withdrawal from international trade agreements such as the Trans-Pacific Partnership (TPP), renegotiation or abandonment of the North American Free Trade Agreement (NAFTA), and the imposition of tariffs on imported goods, including a 35% tax on imported cars and a 45% tax on Chinese exports. These measures were justified as efforts to support American industries and protect jobs, especially in infant sectors that need time to develop and compete internationally.

The rationale behind protectionism often references the success of industrialized nations like Japan, South Korea, and China, which initially relied on protective policies to nurture their nascent industries. Supporters argue that similar strategies are necessary for the US to maintain competitiveness, citing examples like Airbus subsidies in Europe, which allegedly give European manufacturers an unfair advantage over American firms such as Boeing (Tziamalis, 2018). Under the Game Theory framework, protectionism is viewed as a necessary response to the actions of hostile foreign competitors, ensuring that domestic firms can survive and thrive against subsidized or protected foreign companies.

The Case Against Protectionism: Economic Theories and Realities

Despite these arguments, economic theory largely advocates for free trade as a healthier long-term strategy. Classical economic models, like the principle of comparative advantage, assert that countries benefit when they specialize in producing goods and services where they are most efficient, and engage in international trade. This specialization leads to lower prices, higher quality, and increased consumer welfare for all nations involved (Tziamalis, 2018). Conversely, protectionism tends to distort these efficiencies by reducing competition, raising prices, and limiting consumer choice.

Empirical evidence shows that heightened tariffs and trade barriers can negatively impact economic growth. For instance, if the US increases import tariffs by 20%, and trade partners retaliate similarly, there would likely be a significant decline in US GDP and income levels (National Institute of Economic and Social Research, 2018). Such retaliation can trigger a protectionist spiral, damaging international economic relations and reducing the volume of trade, which is detrimental for global and national economies alike.

Protectionism and its Impact on Quality and Competition

Protectionist policies can also erode the standards of goods and services. Market competition drives innovation and quality improvements; without this pressure, domestic industries may stagnate, producing lower-quality products that fail to meet international standards. When domestic producers are shielded from foreign competition, there's less incentive to innovate or improve efficiency. Consequently, upon entry into global markets, these protected industries may struggle to meet international quality benchmarks, ultimately reducing their competitiveness and harming exports.

Furthermore, protectionism limits competition, which is fundamental to the demand-supply-price mechanism in economics. Without multiple suppliers, prices tend to increase, reducing consumer purchasing power and increasing inflationary pressures. This price distortion can lead to decreased affordability and consumption, further hurting economic growth.

The Job Market and Social Consequences

Protectionist measures have notable implications for employment. Foreign companies operating in the US often employ thousands of Americans, and restrictions or tariffs can lead to the shutdown of these operations, resulting in job losses. For example, increased tariffs may make foreign firms less willing to operate in the US, as outlined by Irwin (2017), which directly impacts the employment rate and overall economic activity. Unemployment reduces household income, lowers consumer spending, and can foster social issues such as poverty and crime (Melgar, Milgram-Baleix, & Rossi, 2013).

Labor unions and industrial-sector workers usually advocate for protectionism to safeguard their jobs, but this often results in higher costs for consumers and reduced economic efficiency. Unemployment caused by protectionism can also lead to a decline in worker morale and productivity, further impeding economic growth (Thompson, 2017).

Retaliation and International Relations

Protectionist policies risk provoking retaliatory actions from trade partners, leading to reduced exports and a retreated global supply chain. Such retaliation can negatively impact US industries reliant on international markets. As Lavergne (2014) explains, a protectionist cycle can develop, weakening the international trade system and destabilizing political relations. This deterioration hampers collaborative efforts to solve global challenges such as climate change, security, and technological advancement.

Technological Innovation and Knowledge Sharing

Protectionism impedes technological progress by restricting the sharing of innovations between countries. The US currently leads in technological expertise, and sharing knowledge accelerates global technological advancement. When countries impose trade barriers, they limit the flow of technology, which can slow US innovation, especially in sectors like green technology and manufacturing (Dembour & Stammers, 2018). For instance, protecting domestic auto industries from foreign Eco-friendly vehicle technology might stagnate growth in sustainable transportation.

Long-term Economic Strategy: Free Trade over Protectionism

In balancing the pros and cons, many scholars and economists advocate for free trade as the best long-term strategy for economic development. Free trade promotes efficiency, incentivizes innovation, reduces costs, and improves consumer choice. Former President Barack Obama's approach to open markets exemplifies this philosophy, encouraging industries to adapt through technological investment, workforce skill enhancement, and innovation (Tziamalis, 2018).

To remain globally competitive, US industries must focus on improving productivity, investing in new technologies, and fostering a skilled workforce, rather than relying on protectionism. Such strategies would enable industries to meet international standards, expand abroad, and create new jobs domestically. The government’s role should be to facilitate this transition through supportive policies rather than imposing trade barriers.

Conclusion

Protectionism, while appealing as a short-term shield for domestic industries and jobs, ultimately hampers economic growth, innovation, and international relations in the long run. The evidence overwhelmingly suggests that fostering free trade, promoting technological advancement, and investing in workforce skills are more sustainable strategies for economic prosperity. The US must recognize the limitations of protectionism and embrace policies that enhance competitiveness rather than substitute for it. Only through such measures can the country secure both economic stability and global leadership.

References

• Berend, I. T. (2016). An economic history of twentieth-century Europe: economic regimes from laissez-faire to globalization. Cambridge University Press.
• Dembour, M. B., & Stammers, N. (2018). Free trade, protectionism, neoliberalism: tensions and continuities. London Review of International Law, 6(2), 262-283.
• Grundke, R., & Moser, C. (2016). Evidence of Hidden Protectionism in the US in the Great Recession. Journal of International Economics, 101, 66-79.
• Irwin, D. A. (2017). Peddling protectionism: Smoot-Hawley and the great depression. Princeton University Press.
• Lavergne, R. P. (2014). The political economy of US tariffs: An empirical analysis. Journal of International Economics, 94(2), 210-226.
• Melgar, N., Milgram-Baleix, J., & Rossi, M. (2013). Explaining protectionism support: the role of economic factors. ISRN Economics, 2013, 1-8.
• National Institute of Economic and Social Research. (2018). How could protectionism affect the US economy? NIESR Reports.
• Thompson, B. (2017). Solving the Corporate Inversion Phenomenon: An Exercise in Free Market Patriotism, Protectionism Through Facilitation. The Business, Entrepreneurship & Tax Law Review, 1(2), 657-678.
• Tziamalis, A. (2018). Explainer: what is protectionism and could it benefit the US economy? The Conversation.
• Watson, K., & James, S. (2013). Regulatory protectionism: A hidden threat to free trade. Journal of International Economic Law, 16(3), 523-546.