Trade-off at Election Time
JOHN B. CONNALLY, Republican presidential hopeful, and the United Auto Workers don't usually see eye-to-eye. But when Connally recently demanded quotas on imports of Japanese cars, leaders of the union nodded their approval. Meanwhile, Florida vegetable growers are asking the government to restrict imports of Mexican tomatoes by requiring costly packaging. Northeastern manufacturers and labor unions are railing at the flood of shoes and textiles from Brazil and lobbying for the government import restrictions. On the fiftieth anniversary of America's last era of protectionism, it appears American politicians are on the verge of celebrating by reviving import restrictions.
During economic slowdowns trade restrictions are everybody's favorite panacea to unemployment induced by more efficient foreign competition. While the pressures of free trade displace only a relatively small segment of the domestic labor force, these unemployed are highly visible, and in the context of high unemployment, a democratic government is hard pressed to adopt short-term palliatives. Producers like protectionism because it is a form of government support which interferes least in their affairs. Workers in declining industries like it because it saves their jobs. The government likes it because it is a form of assistance that requires little expenditure. But the only groups protectionism does hurt are consumers and export industries.
By reducing the volume of imports from abroad, trade restrictions dramatically diminish the range of goods from which consumers can choose. Moreover, protectionism accelerates domestic inflation by forcing consumers to buy higher priced domestic goods instead of cheaper foreign products. A 1978 survey sponsored by retail organizations found that goods imported from Asia and Latin American cost, on the average, 16 per cent less than their American counterparts. Lower income groups then, the major consumers of these cheaper imported goods, suffer the most from the protectionist policies.
BY SHUTTING OUT vigorous competition from abroad, trade restrictions stifle the incentive to innovate, and domestic industry only gains a paunch. So workers actually may end up benefitting from free trade in the long run, because protectionism perpetuates low-wage industries, such as textiles and shoes, at the expense of expanding higher wage export industries. While workers in the North are immediately hurt by the loss of jobs to Mexico, their successors will be better off because they may move into higher paying industries.
But in the real world, workers do not automatically find or qualify for these more lucrative positions. If they are to benefit from free trade, government must actively aid in shifting workers from declining industries into dynamic, growing ones. Giving out unemployment bonuses and pep talks to displaced shoe factory workers in Massachusetts will hardly prepare them for new jobs. Government policymakers should concentrate on increasing the supply of skilled labor through retaining programs. Moreover, it should provide direct incentives for growing industries to set up shop in those communities victimized by plant closings and lay-offs.
Trade protectionism prevents developing nations from paying bloated debts to Western bankers. The Third World owed more than $258 billion to Western governments and banks by the end of 1977, according to the World Bank. Brazil alone, the second largest Third World debtor, owed $19.3 billion at the end of 1977. As John Maynard Keynes once apocryphally said, if you owe the bank 100 pounds sterling it's your problem, but if you owe the bank 100,000 pounds sterling, it's the bank's problem. Western policymakers cannot afford to neglect the needs of their bankers' debtors when formulating trade policy, or they may find themselves formulating international economic turmoil.
In an election year when the economy is suffering from rising unemployment, American workers might be tempted to vote for the politicians who promise to safeguard their jobs in the short-run by restricting imports. But over the long haul, such a policy will only hurt these workers as consumers. And worse, scrapping free trade ultimately will erode the long-term welfare of the American worker, which protectionist politicians claim so vigorously to protect.