The Perils of Rising Protectionism

This essay was originally published in the April 18, 1977 issue of Time Magazine, which can be viewed online here

Too many supporters of free trade tend to be fair-weather friends. When the economic climate is sunny, nations are delighted to trade as much as possible with one another. But when a recession chill sets in, they hunker down and try to protect themselves from their neighbors’ goods. That is what happened as a result of the severe 1973-75 recession; trading barriers were partially rebuilt, and they are beginning to have a permanent look. The world could become much more protectionist, especially if the U.S. goes along with the trend.

On record, Jimmy Carter is a free-trader. He is also committed to reducing U.S. unemployment, and growing imports threaten jobs. How to reconcile these conflicting responsibilities is one of his most acute dilemmas. So far he has leaned to free trade. By refusing to impose a higher tariff or fixed quotas on imported footwear, he relieved many U.S. friends abroad. “A victory for us and the American consumer,” exulted Niveo Friedrich, head of a Brazilian shoe manufacturers’ association. Though the President’s decision is likely to stick, he can be overridden by Congress, where protectionist pressures are traditionally strong. Free trade has won a round, but the outcome of the larger fight remains in doubt.

People tend to forget how important free trade is to the economic and political health of the globe. History abounds with evidence of the folly of protectionism. Ever-higher trade barriers, climaxed by the U.S. Haw-ley-Smoot Tariff Act of 1930, helped bring on the Depression and the World War that followed. Since then, the U.S. has been committed, with occasional lapses, to trade liberalization. Even so, Carter is under more pressure than previous postwar Presidents to modify U.S. policy. Some of the most forceful protesters are his own political allies, especially labor.

For Carter, not only do shoes pinch but sugar has soured and television sets are on the blink. Protectionists are demanding higher tariffs to help these and other American products. Since 1968 foreign shoe manufacturers have increased their share of the U.S. market from 22% to 46%; during that time, 300 American shoe factories have closed, with the grim loss of 70,000 jobs. Foreign color-TV sets—made mostly in Japan, Taiwan and Korea —accounted for 18% of U.S. sales in 1975; they surged to 42% last year. With sugar imports pushing the price down to 120 per lb., domestic producers claim they cannot cover costs.

The protectionists have been backed by the International Trade Commission, a six-member group empowered by the 1974 Trade Act to recommend relief for industries threatened by imports. The ITC suggested that 265.6 million pairs of shoes—the 1974 level of imports—be permitted to enter the U.S. at the current 10% tariff. The duty would be quadrupled to 40% for additional footwear; for color-TV sets, it would be quintupled to 25%; and the annual 7 million-ton sugar quota for imports would be cut by more than one-third. The ITC estimates that if its tariff is adopted for shoes, 5,100 jobs will be saved and an equal number will be created as U.S. firms pick up some of the foreign business.

America, the protectionists argue, is living in a free-trade fool’s paradise; other nations casually resort to a variety of ruses to keep out unwanted goods. No fewer than 850 nontariff barriers have been uncovered that do not necessarily break the letter of the law of free trade but certainly tax its spirit. Foreign governments may subsidize export industries by waiving taxes or granting easy bank loans. They may impose cumbersome safety standards, customs procedures and packing and labeling regulations. Japan, for example, insists on its own chemical analysis of imported perfumes and cosmetics; the delays in completing the tests discourage many foreign companies from seeking sales.

If free trade is imperfect, however, the cost of protectionism is prohibitive. The ITC proposals would add another $1 to the store price of casual shoes made abroad; shoe retailers, who oppose a tariff raise, estimate that the annual footwear bill for American consumers would increase by $500 million. At least another $40 would be added to the cost of an imported color-TV set; the price of sugar would edge up to nearly 12½¢ per lb., at a cost to consumers of $110 million a year.

One act of protectionism encourages another nation to retaliate so that any gain is canceled out. Spain imports three times as much from the U.S. as it exports. If its shoe sales to the U.S. are seriously curtailed, it can buy elsewhere—hurting American export industries. Trade restrictions ensure the survival of the least fit: businesses that cannot compete on their own in the world economy. This kind of coddling of inefficiency leads eventually to economic stagnation. In sum, protectionism is often a matter of robbing a productive Peter to pay a nonproductive Paul.

Restrictions also damage the societies that can least afford economic setbacks: the developing nations.

Shoemaking, for instance, is well suited to Third World nations because it requires little capital and manpower is plentiful. South Korea and Taiwan, whose rapid economic progress has set an example for the entire underdeveloped world, are utterly dependent on the U.S. market for the sale of shoes. In just nine years, Brazil has created from virtually nothing a $170 million shoe export business.

Brazil recognizes that America, its best customer for shoes, cannot indefinitely absorb its footwear and is now making a strenuous effort to find other markets. As a Hong Kong textile manufacturer says: “We know we cannot just flood the world, but we do think we should be entitled to a fair share of the annual growth.”

The cause of free trade is helped by some give and take on all sides. In preference to trade barriers, President Carter is trying to work out agreements with other nations to cut back exports that genuinely harm home industries. This is no easy undertaking; last week in Tokyo, U.S. negotiations with Japan over color-TV sets broke down, at least temporarily. Such in formal arrangements, based on cooperation instead of retaliation, represent something of a concession to protectionism, but they are sometimes necessary to avoid its worst excesses.

Of course, a better way would be a mass and mutual dismemberment of all trade barriers, visible and invisible. In trade as in politics, fairness is the name of the game, and everybody should know how to play it.

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