Could the US use a little protectionism?
Though it's a dirty word in many circles, a little protectionism might be good for the US.
Would a touch of protectionism do the United States some good?
Protectionism is generally taboo among policymakers and economists. “Being called a protectionist is only slightly better than being called a criminal,” states Dean Baker, codirector of the Center for Economic and Policy Research, a liberal Washington think tank.
It is safe today, though, to take a tough line on trade disputes and, indirectly, do more to protect American interests because the financial crisis has blunted the international program for lowering trade barriers.
“Last year’s experience has made people much more wary,” says Robert Weissman, president of Public Citizen. The nonprofit consumer advocacy group worries that World Trade Organization (WTO) deals will effectively block reregulation of the nation’s financial industry.
“People don’t believe the promises of free trade have been met,” says Andy Gussert, national director of Citizens Trade Campaign, a major coalition of environmental, labor, consumer, family farm, religious, and other civil society groups. It aims to block Bush-era trade deals negotiated with Colombia, South Korea, and Panama, and to seek renegotiation of such important trade deals as NAFTA (involving Canada, the US, and Mexico) and CAFTA (Central America and the US).
As a result, prospects for the eight-year-old Doha Round of global trade negotiations under the 153-nation WTO are extremely dim. And with a US president preoccupied with healthcare reform, financial regulation, and the economy, trade liberalization will not get a boost from the country that is normally the biggest fan of breaking down trade barriers.
Key countries like India and China “are ready to do business, but the US is not,” says Harald Malmgren, a Washington consulting economist who helped negotiate the Kennedy Round of trade talks decades ago.
The huge US trade deficit suggests that it has a relatively open market to imports and is not especially protective. The deficit also indicates that at a time of high unemployment, the US is losing jobs to China and other countries with trade surpluses.
To start tackling this problem, the Obama administration in September imposed a bit of legal protectionism. It slapped high tariffs on Chinese tire imports for three years, starting at 35 percent. One of the terms for admitting China into the WTO was a provision allowing an importing nation to take such tariff action when surging imports “threaten to or cause market disruption.”
Mr. Malmgren suspects Washington law firms will stir up business by finding other industries facing keen Chinese competition. “We could get a series of cases,” he says.
Some trade experts see China as predatory in its trade policies. It manipulates its currency to give its exporters a price advantage, thereby creating jobs for millions of ex-farmers. It requires foreign corporate investors to bring their advanced technology with them and insists that its own companies weigh national interests in their plans.
The US is “being outgamed economically – losing industries and racking up large trade deficits,” noted a 2006 paper by three prominent economists for Levy Economics Institute of Bard College. They suggest various countermeasures but insist they aren’t protectionism.
Mr. Baker has an unusual solution: The US should start buying Chinese yuan on the foreign exchange markets at 5 yuan to a dollar, rather than the current price of about 7 to 1. That would push up the price of Chinese goods.
Protectionism? Or just fair trade?