Trade Protectionism Revisited - Background, Outcomes, and Analysis

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EXECUTIVE SUMMARY

World trade has been growing faster than world GDP and benefiting countries with free trade policies. Yet, governments continue to impose traditional and innovative trade protections, and justify their policies by claiming that trade restrictions protect national interests. Research studies actually show that protectionism is harmful and produces negative outcomes. The real reason behind protectionist policies is domestic politics and government yielding to pressure from interest groups who stand to benefit from protectionism affecting their industries.

Keywords: Free Trade, Protectionism, Economy, Employment, Partisan Politics.

INTRODUCTION

The 2008 Index of Economic Freedom published by the Heritage Foundation ranks the United States of America as the fifth freest economy in the world. A dimension in the Index is the extent to which international trade is free of government interference. In this regard, while not top ranking, the US is a world leader and champion of free trade, and this has been so for decades, especially after World War II when the US government made free trade part of its foreign policy to promote political cooperation and stability. US government commitment to free trade, however, has not been without occasional but repeated patterns of protectionism that interfere with free trade and cause negative consequences domestically and internationally. More recently, protectionist sentiments in the US seem to be surging again as manifested by the many bills before the Congress that aim to curtail free trade in different industries and with different countries. Congress has also been stalling on debate and ratification of free trade agreements that the Administration had laboriously negotiated with key trade partners in Latin America and Asia. Even presidential candidates in 2008 have been promising to open existing trade agreements to re-negotiate measures that are more restrictive. Furthermore, Congress is putting the final touches on a $300 billion Farm Bill that is proving to be the "costliest in history" and that WTO trade partners consider the main obstacle to completing the Doha Round of multilateral trade negotiations (Gordon and Cho, 2008). AU this while the rest of the world is moving forward and negotiating free trade agreements (FTA) with or without the United States. There are currently 380 FTAs worldwide and the United States is a member of only about ten. This is reason for concern considering that about half world trade takes place within FTAs (Trading without America, 2007). This renewed surge in protectionism is an occasion to revisit the subject matter to understand trade protectionism, its consequences and rationale.

TRADE

Nations of the world have been trading in goods and services with each other since the dawn of history. In modern times, and especially since the establishment of GATT, multilateral trade has flourished and produced economic prosperity and political stability among trading partners. The fruits of trade have induced every country to want to join the community of trading nations and to petition for membership in international trade organizations knowing very well that they would compromise their national sovereignty and become accountable to trade regulations drafted by delegates of foreign governments. At times, trade has not been without elusive outcomes, inadequate cooperation with regard to certain protected industries, and painful socio-economic dislocations within domestic economies. Yet, and in spite of the shortcomings, trade has advanced steadily and at times rapidly, and created an awesome outcome where the growth of world trade outpaced the growth of world economy. Table 1 shows the growth in world GDP and merchandise and service trades in recent times.

The growth of real trade, as opposed to dollar value trade, exceeded economic output by more than 4 percentage points between 1996 and 2006. …