Protectionism rising?

Protectionist sentiment appears to be rising. From the standpoint of protecting your nation’s economic turf, protectionism might feel good. But a global trade war could stem from rising protectionism.

We have organizations in place to monitor trade agreements and resolve disputes like the World Trade Organization. But nations can invoke protectionist measures without violating free trade agreements.

The lesson for individual nations who invoke harsh protectionist measures can be that while imports decline, exports decline as well, hurting your GDP. From a broader view, nationalism intensifies - undermining the global cooperation needed to grease to markets sorely in need of working efficiently again.

That could stifle a global recovery - since most nations are tied closely together by trade. Plus invoking policies to shut other nations out of trade is hard to undo when done. And it can spur retaliation among trading partners.

The poster child for the negatives of protectionism is the Smoot Hawley Tariff Act, which raised tariffs on 20,000 items during the Great Depression. You can research that for yourself if you like.

A story in the Financial Times yesterday outlined the new Buy China plan that is part of Chinese recovery efforts:

“In an edict released jointly by nine government departments, Beijing said government procurement must use only Chinese products or services unless they were not available within the country or could not be bought on reasonable commercial or legal terms.”

The Christian Science Monitor had a quote in its recent Buy China story that suggested Chinese exporters have taken such a hit in foreign markets that protectionist pressure is coming from Chinese workers who see protectionist efforts happening in other nations:

“Pressure for protectionist measures is building in China, says Mr. Xiang (Songzuo, an independent economist), but it is not coming from workers fearing for their jobs, as is generally the case in Western countries.

Instead, he says, “many companies, mainly private exporters, are complaining to the government because they are losing their foreign markets … and they need more domestic demand. They see other countries’ stimulus packages encouraging firms to buy local and hire local workers, and they ask why the Chinese government does not have a similar policy.”"

The move is an about face for China, which had spoken out earlier this year against any efforts to protect national manufacturers from outside competition.

Our own $787 billion stimulus plan in the U.S., signed into law in February, favors domestic steel and iron and other items for stimulus projects. So we can’t really point a finger at China unless we want to look back at the one pointing at ourselves.

Another recent story, “Beijing orders ‘Buy China’ for stimulus projects” from the Associated Press reports that the Buy China plan may not be so different from how the country currently operates:

“The American Embassy in Beijing, in a written response to questions, noted that Chinese government agencies already are required by law to buy domestically made goods and services whenever possible. The embassy did not immediately answer a question about whether Washington might challenge the order.”

That story also reports that some companies with Chinese factories feel they are being excluded from stimulus financed projects in Europe.

And finally, at the end of a Reuters protectionism story “Group warns Buy American measures threaten US jobs,” we find our neighbor to the north, Canada, threatening to retaliate to protectionist U.S. measures:

“Canadian mayors have threatened to retaliate by shutting out American suppliers from the $15 billion worth of business they currently do with Canadian municipalities, (Jay)Myers, (president of the Canadian Manufacturers and Exporters) noted.

Canadian Prime Minister Stephen Harper is set to offer to negotiate a broader procurement arrangement, and provincial premiers are on board, Myers said.

“If the leaders of the world’s two largest trading partners cannot avoid … job losses or restrictions on trade, then heaven only help the rest of the world in trying to avoid falling into the same spiral of protectionism,” Myers said.”

Finally, in this newsroom Thomas Russell recently wrote a column about efforts by the American Manufacturing Trade Action Coalition, also known as AMTAC, to create a Border Tax Equity Act to impose a tax on imported goods.

Such a tax would be created to counter value added taxes that are added to imports into other nations.