Photo: AP Photo/Rodrigo Abd

The Problem with Protectionism

Who is it Protecting?

Under the Radar

Evan Hays

June 1st, 2016


Last week the chief of the IMF, Christine Lagarde, spoke in Berlin and Frankfurt on several increasingly pertinent economic issues. Most pressing among them is protectionism. Protectionist philosophy, as defined by the Encyclopedia Britannica, is “A variety of policy instruments for trade barriers, including tariffs, quotas, and subsidies, [that ] has historically been used to protect domestic import-competing industries and to encourage exports”. European countries, in lieu of the recent refugee and euro crisis, have seen a large influx of right wing parties. These parties, typically playing on the idea of nationalism, have continually opposed the idea of the european union, citing the failures of the schengen zone and euro as evidence that competition between countries instead of cooperation within all states. Hungary, for example, has voted a nearly fascist government into power who has passed policies of “market defense”, which favor the rejection of the Euro among other xenophobic legislation.

Acknowledging this, we as a nation must understand both the benefits and flaws of a focus on national economics as opposed to world significance economically. It’s important to view neoliberalism through the veil of history, as it is an economic philosophy indeed predicated on the study of flaw. Just as a company should look to its bankrupt competitors for clairvoyance in tough economic times, countries should study policies through the ages to find a path to growth. So let us study the idea of protectionism. It’s practice, it’s policy, and its repercussions.

As we defined, Protectionism is a philosophy based on the notion of the home country's economy being shielded from fluctuations abroad. This seems pragmatic in practice, why should a nation's economic stability levie itself on factors outside its borders. In the United States even, the world's foremost economic power, we see a huge dependence on foreign trade. The recent steel bubble crash in China, combined with its opaque at best currency status and shady economic statistics has not helped us recover from the recession of 2008, and many analysts foresee a new crash on the horizon. It’s easy to see the appeal of isolationism, if the problems come from abroad, why import them? But do the problems come from abroad? Not exactly.

 

Opposite than Intended Effects 

This moves us to the policy of protectionism. How is it implemented? The obvious answer is tariffs. These taxes on any import encourage domestic job growth, primarily in the industrial sector. Or so it would seem. Other policies include high taxes on companies that outsource jobs, this is to curb the practice and retain jobs in country. Again, it would seem that these two distinctly protectionist policies would only “protect” the livelihoods of those they are directed towards. However that is not always the case, and more often than not, it seems to spur the opposite.

Most notably in neoliberal countries with less regulated economies, companies with higher taxes imposed on them do not follow them, but rather raise prices and lower wages to abate the cost. Relocating all their factories from China would cost millions, not to mention the added cost of abiding by wage and conduct laws in the United States, and thus the logical step becomes coercion of senators, lowering of wages, continued outsourcing, and price hiking. Diplomatically the problem becomes even more nuanced. Not only does protectionist policy prompt companies to flee their home nations in search of fresh levies, but in the case of many countries, they allow for rampant political maneuvering. In the case of many European countries, far right parties are capitalizing on the eurozone's recent stall as a way to use protectionism to fuel race and religion based hatred. Greece’s Golden Dawn party claimed just last year that a departure from the Euro would be “the purification of ethnic greek superiority above inferior currencies”.

 

Truthfully we need look no further than the last century to removed the facade of idyllic protectionism and reveal its true nature of xenophobia. We saw two world wars funded off the idea of international competition and not cooperation. The scary part of that is not the scale of the warfare, but it’s frequency. Arms dealers relished at the ability to sell countless instruments of death to jingoist states in 1914, and as the Treaty of Versailles imposed massive military restrictions on Germany in the name of “preserving economic sovereignty”, the very same companies were only happier to throw their economic support behind increasingly nationalist candidates with agendas that included remilitarization, among other things.

This isn't to say that laissez-faire capitalism is always the dictionary of good conduct, and in many cases unlimited internationalism has led to massive fluctuations in capital that leave the common man without a home to live in. But, there must be regulation of international trade, not elimination. Cooperation between states, not competition. And as the 2016 election arrives with increasing speed, we should consider how the international rhetoric of our candidates reflects the economic woes of home.