(2 of 3)
In some ways, the debate between free traders and protectionists is illusory, an argument about a world that does not exist. Free trade is merely a theoretical ideal. All trading nations protect themselves, more or less. West Germany is the nation that is most open, closely followed by the U.S. France is more protectionist than the U.S. Almost everyone except the Japanese regards the Japanese as the most protectionist, given to such elaborate nontariff barriers as the superzealous customs check and a cohesive, even collusive, partnership between business and government.
The real question, a hard and unsettling one, is whether the U.S. will yield to political temptation and become much more deeply protectionist than it is now. If it does, the results, for both the U.S. and the world economy, could be devastating. The principles of free trade remain essentially valid; the logic of protectionism remains beguiling and essentially self-destructive. Consider one example of how protections can subvert the economy. The American machine-tool industry recently joined the lineup of those seeking protection from foreign competition. The industry has been seriously hurt by the recession and by imports of cheaper or better machine tools from Japan and other countries. Since machine tools are essential to a growing U.S. economy and to its defense, the toolmakers argue, import restrictions must be imposed so that the domestic industry can survive and supply other U.S. manufacturers with the equipment to modernize and expand.
It is a seductive but wrongheaded argument. Import restrictions on cheaper or better tools would mean that the domestic industry would no longer be forced to match foreign competition. This would mean the U.S. manufacturers who buy machine tools would have to make do with more expensive, less sophisticated or less efficient American machine tools. Inevitably, those American manufacturers would produce more expensive, or less modern, products. Their competitiveness would suffer. They would lose sales both in the U.S. and abroad. Then those manufacturers would also be traveling to Capitol Hill to demand protection against "unfair" foreign competition. That kind of protectionist spiral could suck the U.S. economy, and that of the entire free world, toward long-term stagnation and depression.
Protectionist laws can indeed give short-term relief to some targeted industries. But protectionism amounts to a subsidy that is financed by the U.S. consumer and other U.S. industries. Furthermore, Newton's third law of motion (the one about every action having an equal and opposite reaction) applies in international trade. Protectionist laws invite retaliation. The logic of protectionism is degenerative. It pitches economics toward a medieval and even tribal fragmentation.
If the U.S. means to develop a trade strategy, it should not begin with protectionism. That tends to push things toward stasis and mediocrity. The economic recovery of the U.S. hinges upon the nation's ability to regain its competitive strength in the markets abroad.