Globalization and Protectionism

Although the recent free-trade deal with Peru passed by the Democrat-controlled Congress is a step in the right direction, the United States has a lot more work to accomplish. This symbolically important step is supposed to be a sign of fewer barriers to trade in the future. As such, “George Bush's administration hopes other bilateral deals will follow, as a new bipartisan consensus on trade develops” according to a recent article in the Economist (“Economic focus | Buying off the Oposition”).

However, this is unlikely to happen. This is despite the fact that global trade is a confirmation of the time-tested theory by Adam Smith in 1776: “Individuals trading freely with one another following their own self-interest leads to a growing, stable economy” (Greenspan). This model of optimal market efficiency occurs only when its fundamental requirements are at work. Specifically, people must be free to act in their self-interest, unfettered by economic policy. An example of such a mistaken policy includes any government action or regulation that limits international trade.

Unfortunately, America is leaning towards just such a shift in opinion. The Peru negotiation appears to be an irregular, one time event. First of all, the Democratic presidential candidates “want to ‘revisit’ existing trade deals and are against an agreement with South Korea, the biggest negotiated by the Bush team” (“Economic focus | Buying off the Oposition”). A number of economists even believe that the Peru vote will be used as a playing card by Congress to prove their independency from a one sided viewpoint.

Secondly, recent surveys indicate that the American public is also becoming more fearful of globalization and free-trade. According to an opinion poll conducted by the Pew Research Centre, “the share of Americans who believe that trade is good for their country has plunged from 78% in 2002 to 59%, the lowest proportion among the 47 countries included in the survey” (“Economic focus | Buying off the Oposition”). What’s interesting is that this bias towards trade skepticism is equally shared by both Democrats and Republicans, according to the article.

Indeed, the idea that U.S. economic policy is becoming more protectionist is hard to ignore. Barriers to both trade and foreign direct investment are increasing in number. For example, “the chances of congressional renewal of President Bush's trade promotion authority, which is set to expire this summer, are grim. The 109th Congress introduced 27 pieces of anti-China trade legislation; the 110th introduced over a dozen in just its first three months. In late March, the Bush administration levied new tariffs on Chinese exports of high-gloss paper -- reversing a 20-year precedent of not accusing nonmarket economies of illegal export subsidies” (Slaughter).

Additionally, one only needs to read the newspaper occasionally to see the number of thwarted attempts by foreign companies proceeding with mergers or acquisitions of U.S. companies. “In 2005, the Chinese energy company CNOOC tried to purchase U.S.-headquartered Unocal. The subsequent political storm was so intense that CNOOC withdrew its bid. A similar controversy erupted in 2006 over the purchase of operations at six U.S. ports by Dubai-based Dubai Ports World, eventually causing the company to sell the assets” (Slaughter).

Matthew Slaughter, a former member of Mr Bush's Council of Economic Advisers and now a professor at Dartmouth College, believes that this shift in U.S. policy reflects an American public that is becoming more protectionist due to “stagnant or falling incomes” (Slaughter). While globalization may or may not be the cause of this stagnation, people think it is. According to Slaughter, “public support for engagement with the world economy is strongly linked to labor-market performance, and for most workers labor-market performance has been poor.”

These thoughts are alarming because of the enormous benefits that global trade poses to the U.S. economy. Thus, the following question must be answered: How should U.S. think tanks and public intellectuals respond to the idea that global trade benefits Americans less than their trading partners?

Should the notion that lower income is a result of free trade be believed, incomes must rise to prevent further barriers to trade. Mainstream, well respected economists such as Greenspan in his recent book, The Age of Turbulence, suggest the need for greater investment in education and assistance to shift workers from old industries to new industries as a means to combat this drop income.

However, “significant payoffs from educational investment will take decades to be realized, and trade adjustment assistance is too small and too narrowly targeted on specific industries to have much effect” according to Slaughter. I won’t even attempt to conceptualize a solution to this problem. I will merely offer the opinion of someone much more educated than myself. Slaughter believes that the best way to combat the recent rise in protectionism is to redistribute income throughout U.S. society. This may be accomplished in several ways. The tax system may be overhauled as to more heavily levy taxes upon the wealthy and cut taxes for the poor. Slaughter classifies this idea as a “New Deal for globalization,” echoing thoughts of Franklin D. Roosevelt’s series of programs and initiatives that responded to the Great Depression.

Whatever course of action the U.S. embarks upon should undoubtedly be met with strong resistance at the moment. The magnitude of all of these ideas is by no means small and will require a great deal of time to implement. Nonetheless, any solution must strongly explain to the American people the many benefits of a global economy.


Works Cited

Greenspan, Alan. "The Age of Turbulence." New York: Penguin Group, 2007.