Wednesday, February 25, 2009

The Evolution of Protectionism

(Tom Travis —

Have the effects of cross-border trade influenced U.S. policy in favor of protectionism?

If your business is involved in the global marketplace, there’s rarely been a time so fraught with potential disaster as right now. A confluence of factors has combined to create a perfect storm that threatens to make it more difficult and more costly to move goods across borders. In essence, we’re seeing the evolution of protectionism beyond its traditional meaning to encompass a whole range of new threats.

Protectionism is of course a loaded word that carries a connotation of xenophobia or nationalism--an “us against them” mentality. Historically, it’s usually referred to the practice of erecting barriers to foreign goods or investment to promote domestic industry. Economists don’t like it because it can short-circuit the free market system, foster inefficiency and drive up prices.

This strain of protectionism has always been around and always will be. A case in point is the “buy American” provision included in the economic stimulus bill, which requires any iron or steel used in the construction projects funded by that legislation to be purchased in the U.S. Those industries have been among the most ardent in seeking to stave off imports over the years, and they’ve never lacked for political backers. That support has only grown with an economy in free-fall and a new team in the White House that thinks it has a mandate for immediate and far-reaching change. Trade policy will be a much bigger part of the effort to revitalize the economy than most people realize, and it’ll be strongly influenced by an energized and emboldened group of lawmakers and administration officials convinced that a healthy dose of enforcement will go a long way toward curing our economic ills. Read more here.