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Foreign Policy
The Protectionist Myth
By Bruce Stokes
This abstract is adapted from an article appearing in the Winter 1999-2000 issue of Foreign Policy magazine.
Conventional wisdom is always conventional. And it is frequently wrong. Such is the case with the widespread belief among many economists, headline writers, business leaders, and policy makers that free trade is in retreat, imperiling the hard-won gains of past market liberalization and threatening ruinous trade wars.
News stories from around the world add to these worries: Korean students march in the streets of Seoul urging consumers to buy only Korean products. French farmers trash a McDonald’s to retaliate against American trade sanctions and to protest the globalization of their dining experience. Brazilian shoemakers, under threat of sanctions, agree to voluntary quotas on exports to Argentina. Washington and Brussels battle over trade in bananas, hormone-treated beef, and genetically modified organisms (GMOs). Activists in Great Britain and India destroy fields of bioengineered crops and press for bans on importation of GMOs. And massive protests by thousands of demonstrators greeted trade ministers when they gathered November 30 in Seattle, Washington, to launch the next round of multilateral trade negotiations.
These anecdotes make arresting headlines and compelling sound bites, but paint an inaccurate picture. Free trade is not in retreat. On the contrary, trade is expanding almost everywhere. The implacable march of global commerce is due, in part, to the widening engagement of many developing countries in the trading system. And this growing economic integration reflects the fact that traditional protectionism—manifested in high tariffs and nontariff trade barriers such as voluntary export restraints, countervailing duties, and antidumping measures—has not increased significantly around the world in recent years.
Thanks to commitments made in the Uruguay Round of multilateral trade negotiations, tariffs have been cut across the board and now cannot legally be raised on items accounting for 87 percent of all merchandise trade, up from 73 percent a decade ago. More broadly, nontariff trade barriers, including import licensing and discriminatory import fees—both designed to discourage imports—are being phased out. Protectionism is much more difficult and costly today than it was two generations ago. Trade represents a growing share of the world economy. Merchandise trade accounted for 37 percent of global gross domestic product in 1998, up from 27 percent in 1980. Any future interruption of that commerce would have a greater impact on economic growth than ever before.
The modern reality of who trades with whom also serves to check protectionism. Three fifths of U.S. imports come from Canada, Europe, and Japan, denting the protectionist argument that trade enables low-wage countries to undermine production in industrial economies. Moreover, four fifths of U.S. exports are bought by other advanced nations, making any American flirtation with protectionism particularly vulnerable to crippling retaliation. European nations are even more dependent on each other for trade, making it virtually impossible to translate the European public’s nationalist proclivities into protectionist policies.
Although the conventional wisdom about a protectionist upsurge is clearly wrong, the seeds of future protectionism do exist and bear watching closely. In addition, there are other, new issues emerging onto the trade agenda that may pose an even greater long-term threat. And it is the way in which the champions of free trade respond to these new threats that may ultimately prove most important for the future of international commerce.
The new protectionism has its roots in mounting consumer fears of genetically modified organisms, environmentalists’ desire to preserve biodiversity, and union concerns about child labor and poor working conditions. Whatever their provenance, all trade barriers have a protectionist effect. Safeguarding domestic farmers from foreign competitors who have access to bioengineered seeds or banning importation of rugs made by children distorts the market by favoring one set of producers over another.
This new protectionism—with its reliance on import bans and quotas—can often look very much like the old variety. But it is both analytically and politically unsound to confuse the two. The very emergence of consumer, labor, and environmental concerns reflects the successful deepening of global economic integration. Trade now touches more and more lives in more and more ways. As a result, new issues such as intellectual property and trade in services unavoidably emerge. Their insertion into the trade policy mix has complicated matters for trade negotiators and created new opportunities for protectionist actions. But these are signs of the success of globalization, not its failure.
In sounding the alarm about a looming protectionist menace, free traders pose a real danger to free and open markets, because raising such a false alarm only inhibits trade negotiators and elected leaders from risking further trade liberalizations. Already averse to such risk, these alarmed officials will then lack the ambition and vision needed to ensure that the upcoming round of multilateral trade negotiations continues the extraordinarily successful postwar expansion of global commerce.
Protectionism is not yet on the rise. The alleged evidence of its revival and the demonstrations in Seattle are merely warning signs. The benefits of international commerce are not yet adequately shared, the costs are not yet sufficiently compensated, and the full impact of trade on the environment has not yet been taken into account. If these problems are not dealt with, protectionism could return with a vengeance in the first years of the new millennium, with devastating consequences. But the world would not have wild-eyed economic nationalists to blame. The villains would be short-sighted free traders who choose to fret about nonexistent protectionism today, rather than work to head off the true threat tomorrow.
The Truth About Trade by Philippe Legrain
References
Susan Aaronson’s Redefining the Terms of Trade (Baltimore: Johns Hopkins University Press, forthcoming)
Jagdish N. Bhagwati’s A Stream of Windows: Unsettling Reflections on Trade, Immigration, and Democracy (Cambridge, Mass.: MIT Press, 1998)
Marcus Noland’s “Learning to Love the WTO” (Foreign Affairs, September/October 1999)