the audit

The Protectionism Bogeyman

February 2, 2009

There’s a movement afoot in the financial press, especially in globalist publications like The Wall Street Journal and Financial Times, to warn about the supposedly rising threat of “protectionism”.

Now, I’m a long-time skeptic of the free-trade religion, which is a branch of the now-discredited free-market one but on a global scale. I’ve long thought the U.S. gives access to its priceless markets too cheaply and at a dire cost to our own manufacturing base.

That said, I understand the economic problems that would be presented by a Smoot-Hawley-style tariff, especially one enacted during the middle of a maybe-depression. And I understand why the press would raise this issue now.

But I question whether the examples in this page-one Journal story rise to the level of protectionism.

A “Buy American” drive in the U.S., spreading protests against foreign workers in Britain and various countries’ efforts to prop up their own beleaguered industries are fanning fears of a rise in economic nationalism that could deepen the global recession.

The “Buy American” bit is a move in Congress to have the money stimulus bill go toward buying American products if at all possible. This should be uncontroversial. After all, we’re spending our taxpayers’ billions to try to stimulate our own economy, not Mexico’s or China’s.

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The protests in Britain are by unions against the practice of corporations bringing in foreign workers to do jobs needed by, you know, Britons.

In Britain, hundreds of workers at U.K. oil refineries and power plants walked off the job Friday as part of protests against the use of foreign labor, a sign of how deepening hardship is prompting a backlash against economic openness. Local contract workers at more than eight sites in Scotland, Wales and parts of England joined a wildcat strike that began earlier this week at the Lindsey oil refinery on the U.K.’s eastern coast.

The workers were protesting a decision by the refinery’s owner, French oil company Total SA, to award a £200 million (about $290 million) construction contract to an Italian firm that planned to use foreign workers.

Good for them. This strike probably isn’t controversial to anyone but economists and multinational corporations because it goes to the core of what’s behind their drive for free trade: access to cheaper labor.

And I don’t think that saving the auto industries in a time of economic free-fall is a threat to the global economy:

German Chancellor Angela Merkel Friday bluntly criticized the U.S.’s efforts to prop up its beleaguered auto industry. In a speech to economic and business leaders gathered in Davos, Switzerland, to discuss the global economy, she said the U.S. measures “quite frankly, constitute protectionism” and should be temporary.

The U.S. has committed more than $15 billion to rescuing General Motors Corp. and Chrysler LLC. But it’s no longer alone: The U.K. is providing debt guarantees for its auto industry. The French government said earlier this month that it is prepared to inject as much as €6 billion to jump-start French auto makers. Ms. Merkel’s own government, after initial resistance, has promised GM’s German-based Opel unit conditional bailouts of €1.8 billion (about $2.3 billion).

At least the Journal points out Merkel’s hypocrisy. But it certainly doesn’t say there might be a good reason for the U.S. to have its own auto industry and especially not to lose its millions of jobs in the current environment.

The only real evidence I can see of protectionist measures here are some Indian tariffs on steel and Russian ones on cars. Those kinds of trade restrictions rise and fall all the time, though, not just in times of economic peril.

There’s no room given to free-trade skeptics in the piece, of course.

There should have been. There are arguments to be made that the crisis could lead to a long-overdue rationalization of our trade policies.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.