Beating Back Protectionism
Swonk, Diane, Chief Executive (U.S.)
ELECTION-YEAR POLITICS often bring out the worst of economic policies. Politicians, caught between their policy-making duties and their desire to win re-election, frequently deliver sound-bite solutions to complex problems. Most recently, China has moved into the spotlight as the scapegoat du jour. It is being blamed for everything from cyclical and structural problems m the manufacturing sector to a more prescient political threat, a loss of white-collar jobs.
Middle-market and family-owned manufacturers have been particularly vocal, arguing that the competition created by China is forcing them to shutter operations. I know of one small auto supplier who closed his doors because it "wasn't worth keeping them open," even though the business was still solvent. He felt there was no way he could compete over the long haul with larger, more integrated suppliers that had the means to source at least a portion of their business from China.
But the criticism is unfair. China has experienced larger losses in manufacturing jobs than the U.S. has in recent years. The rise in employment at new plants has been more than offset by the losses associated with the closing of inefficient state-run enterprise operations. Moreover, the criticism completely ignores the role China is playing in supporting growth among some of our fastest growing trading partners.
A recent study by the Federal Reserve Bank of Chicago finds that even the Midwest - the nation's industrial core - has benefited more than it has suffered from growth m China. The demand for new production facilities in China provided some offset for the drought m investment in the U.S. Everything from construction equipment to machine tools were needed to build plants in China.
One reason the forces of protectionism, rise up is that the benefits of trade are indirect while the costs are direct. For example, little has been written about how Wal-Mart has increased the purchasing power of lower income households by importing from China. Or about the advantage that global competition has given consumers in the selection and quality of goods they buy. My Cadillac CTS is better than anything GM had to offer in the 1970s, and enabled me to be loyal to my father's GM roots by "buying American."
Another more cynical reason for the latest protectionist push, it seems, is that elections are expensive, and those who support protectionist policies can typically draw the financial support of the inflicted few. The money spent by the National Association of Manufacturers in Washington to block trade initiatives is one example.
The battle between free trade and protectionism has, of course, raged for decades. In the 1970s, when imports surged, the U.S. …