A Protectionist America Isn't America at Her Best

Our history shows that closedness to the world's people and products is not a healthy extreme to pursue.

America is not at her best when she is protectionist or isolationist. She is not at her best when she is hyper-globalist and interventionist with fully open borders either. Like Aristotle’s ethical doctrine of the means, the best course of action is in the middle. These days, in an effort to swing from what was hardly a cosmopolitan or globalist extreme, American policy, led by the Trump wing of the Republican Party, has begun to swing hard in other direction.

Prudent politicians should recognize the inexorable reaction to globalization that is too consistent across the Western World to be a coincidence. Brexit, the rise of Marine Le Pen in France, and AfD in Germany, are obvious examples from a longer list of protectionist backlashes against openness to other countries. There are reasons, to be found in similar movements in the past, to believe that this not just a consistent current transatlantic phenomenon, but also one that recurs semi-regularly in the modern world. That said, closing the doors is likely to be at least, if not more, harmful.

The history of American policy gives us evidence of that fact. One of the most protectionist and isolationist periods in our history was from 1928 to 1941. It brought us the Great Depression and a delayed entry into the Second World War, both of which were accompanied by unprecedented suffering.

A good place to start was the decision by the Federal Reserve to tighten the money supply in 1928. As trade economists Douglas Irwin and Barry Eichengreen explain in their article “Slide to Protectionism in the Great Depression,” because of the Gold Standard, the options for other nations were limited. One common response was that “some countries banned capital outflows and imposed direct controls on payments for imports to conserve gold and foreign exchange reserves.” Effectively, foreign nations had no choice but to place restrictions on the flow of capital to try to stop the bleeding from their economies.

Next came the infamous Smoot-Hawley Tariff, a 20 percent tariff imposed on dutiable imports in 1930. According to Irwin and Eichengreen, “The increase in American tariffs was deeply resented abroad, particularly as the United States was an international creditor and exports to the U.S. market were already declining. Smoot-Hawley provoked retaliatory responses, notably from its largest trading partner, Canada, as well as from a handful of European countries.”

This was just the beginning. When the Austrian bank Creditanstalt failed, the German government began to place “strict controls on foreign exchange transactions.” This kicked off trade restriction one-upmanship from various industrialized nations. Protectionist policies are no prettier when imposed by countries other than the United State.

Irwin and Eichengreen conclude,

> This proliferation of restrictions on international trade and payments in the aftermath of Britain’s devaluation dealt a severe blow to world commerce. World trade volume fell 16 percent from the third quarter of 1931 to the third quarter of 1932. Between 1929 and 1932 it fell 25 percent, and nearly half of this reduction was due to higher tariff and nontariff barriers.

Trade protectionism as a policy ideal is usually accompanied by a foreign policy of isolationism. This was true in the 1930s. There are good arguments for keeping the United States out the Italian invasion of Ethiopia or the war between China and Japan. But because of the isolationist policies in the early-to-mid 1930s, American politicians became accustomed to staying out of foreign conflicts, including those that were clearly destined to come to American shores if they weren’t stopped.

Sometimes isolationism and protectionism have included or been accompanied by fear of people among us of non-European ethnicities. Even the generally cosmopolitan Roosevelt gave into fear of Japanese immigrants to the United States. Their placement in internment camps is an infamously grotesque example of America at less than her best. Among protectionist economic policies that affected new ethnic minorities, perhaps the best example of the deportation of 1.8 million Mexicans and Mexican Americans because they were “stealing jobs.”

60 percent of those deported were American citizens.

Conservatives sympathetic to nationalism (as opposed to patriotism) and protectionism may argue that the harmful disruptions of creative disruption accelerated by globalization and the cultural upheavals that immigrants from outside the Anglo-American world can bring are too dangerous. But an America that embraces free trade can still be one that smooths the constant transitions of a dynamic globally connected economy. Likewise, a welcoming America can be assertive about assimilating newcomers to what makes our country great. Most importantly, though freedom is never one generation from extinction, as President Reagan once said, it is also the most infectious idea in human social history. It’s what makes other countries open to trading with us and makes so many people want to come here.

Instead of being doomed to repeat the poor decisions to pursue strict protectionist and isolationist policies -- and thereby their devastating consequences for both individuals and the country as a whole -- the United States should learn from her history. Moderating our pursuit of globalization no matter the disruption of individual lives is a prudent decision, provided it isn’t taken too far. The other extreme is just as bad. We have the past to prove it.

Comments
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FloridaMan
FloridaMan

Protectionism is designed to force an economy to operate in a way that it doesn't operate. It is doomed to failure. Increasingly, "the private sector" is becoming a misnomer thanks to massive government intervention.

DavidMKern
DavidMKern

The 1920’s stock boom that was fueled by credit, the hyperinflation in Germany, and the devastating after effects of WW1, all played a role in the start of the Great Depression. As people rushed to find a secure seat in a financial game of musical chairs, panic ensued, and banks started to fail. Very few people had the liquid financial assets to buy products and this led to companies going bankrupt, massive job losses, and a vicious downward economic spiral.

The reality of today’s world is that it is far different than it was in the 1930’s. China was nothing like the manufacturing power it is today. Over the last 50 years, the US has ceased to be the manufacturing power that it became after WWII. The result has been a decimated economy in many parts of the country and a massive trade deficit with China and other countries. One can argue that “free trade” is an ideal theoretical policy, but in practice many of the so-called “free trade deals” have asymmetrical tariffs that give other countries an unfair competitive advantage. One could also argue that “socialism” is an ideal theoretical policy, but in practice it turns out to be the exact opposite.

President Trump’s seeking to negotiate trade deals with reciprocal tariff’s (or no tariff’s) is nothing like the Smoot-Harley tariffs that were passed in June 1930. Their intention is to correct trade deals that are neither fair nor tariff free. It is also worth arguing that no nation can continuously to send massive amounts of its economic wealth to other countries, as with the last decades of huge US trade deficits. Although it may appear our country is benefitting from the purchase of cheap goods from China, the reality is that we are increasing the wealth of China at the same time we are decimating our own wealth.

Proverbs 22:7 states: “The borrower is slave to the lender.” It is financial reality that China is buying US debt (and companies) rather than the other way around, meaning we are becoming their slaves. Consequently, we should carefully consider whether the rush to globalism that started in the 1970’s will produce the ideal result of theoretical free trade. To acknowledge that issue is not the same as advocating for abandoning all foreign trade. But for anybody concerned about the financial future of our country, this issue is something that theoretical free trade advocates should seriously consider.