10 Great Reasons to Reject Protectionism

12/03/2014 05:45 EST | Updated 02/02/2015 05:59 EST

You may recall this list. It was first printed in the fall of 2009, when global crisis gave rise to an alarming wave of neo-protectionism. With the post-crisis period starting to creep into the rear-view mirror, we are once again getting on with the business of growth. Will the decades of multilateral effort and untold resources that have been devoted to freeing up global trade flows continue, or will protectionism, international trade's arch enemy, be the recession's enduring legacy? There are at least 10 reasons to speed the death of neo-protectionism.

1. International trade was a key driver of global output in the last economic cycle. The world economy grew at an average pace of 4 per cent from 1999 to 2008, but at the same time, exports expanded by 6.5 per cent. As a share of GDP, trade increased from under 40 per cent in 1990 to 65 per cent in 2007. Why threaten the resumption of that impressive trend?

2. The same phenomenon is a key job generator. As trade has become an increasingly larger part of the global economy, the number of trade-related jobs has also grown. By the numbers, jobs directly connected to international trade likely rose much faster than the rest, now accounting for at least one-third of total employment, up from just 20 per cent in the early 1990s. Should we mess with that success, especially as pockets of the developed world are still struggling with massive unemployment?

3. Technology has made trade with every part of our planet feasible, enabling exploration of efficient business solutions worldwide on a scale that has never been possible before in human history. Moreover, recessions tend to urge this process forward. Taking these facts together, it is possible that the neo-protectionism brought on by the Great Recession has never been more of a threat to world prosperity than it is today.

4. Protectionism never happens in isolation. It breeds further (retaliatory) cost-hiking protectionism, as the Recession plainly illustrated, and once entrenched, it is much harder to roll back.

5. Firms shielded by protectionist walls tend to become less productive and efficient over time.

6. The resources required to enforce protectionist measures could be better employed elsewhere.

7. Many multinational firms make the most of their sales outside their home country. These sales are put at risk by retaliatory measures provoked by their home country's protectionist trade actions. More than ever, 'us-first' trade policies actually put at key risk a substantial number of good jobs at home.

8. High-profile protectionist measures were enacted during the crisis to maximize the domestic impact of anti-recessionary stimulus measures. That would have made sense if only a few economies were engaged in stimulus, but most joined the fray, negating the perceived need to disrupt trade flows. Now that stimulus and the austerity that followed are well behind us, this reason for economic wall-building is also in the archives.

9. Protectionism is essentially antagonistic, creating unnecessary bi- and multi-lateral tensions. With the political unrest that fomented in the wake of the crisis, there was arguably a greater need to identify an 'enemy without'. As global growth rises, these sentiments are expected to go into decline, and with them, yet another flawed reason for protectionism.

10. Who bears the cost of a country's own protectionist measures? The very ones it is purporting to protect -- its own consumers. These are the ones that have to pay the higher costs of tariff-protected goods and services, eating up income that might have been invested in the domestic economy, or spent on other home-grown products. Such a recession-prolonging inefficiency tax that makes little sense.

The bottom line? The list goes on. Sadly, protectionism will likely always sell well in an economic trough, but its scant, temporary benefits, weighed against the incalculable gains of globalized trade, hardly register. Our hope? That as the economic recovery continues, these policies will be fast removed and forgotten.


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