Amid the Dubai Port debate here in the US, disagreements over agricultural subsidies, and unease about the effects of globalisation, there has been much talk lately of a new wave of protectionism.
The resurgence of protectionist sentiment is not particularly surprising. Throughout history there have always been those who, in times of transition, cling desperately to the economic status quo. But trade and change have always been fundamental to progress and economic growth. Today, as in the past, protectionists are on the wrong side of history.
In the 19th century, protectionists fought new technology that mechanised farming and moved the workforce from the fields to better jobs in the cities. Later, they fought the changes that replaced many of those factory jobs with jobs in offices. But today, even the most ardent protectionists would not deny that these changes vastly improved millions of lives.
As Adam Smith first observed more than two centuries ago in The Wealth of Nations, by capitalising on what different countries do best, trade lowers costs; frees up capital and resources to be used more productively; promotes growth and development; creates jobs; and raises standards of living.
Evidence of growth
At no time in history have the results of this principle been more evident. The dramatic growth of countries such as India and China in recent years testifies to the incredible potential of free markets and trade to improve lives. India, once a rigid economy controlled by the state, has blossomed into one of the world’s great success stories. The Indian economy has exploded in recent years, creating a growing middle class that is now 300 million strong – larger than the entire population of the US. China has opened its doors to trade and in the process has become the third largest trading economy in the world, with immeasurable benefits enjoyed by millions of its citizens.
It is not surprising, then, that when we polled members of the Financial Services Forum – an organisation that comprises the chief executives of 20 of the world’s largest financial institutions – they ranked protectionism as one of the three greatest threats to continued global economic growth.
Protectionist policies would jeopordise a global trading system that has helped to make our time perhaps the most dynamic era of economic development in human history. Today we enjoy standards of living that would have been unimaginable a century ago and hundreds of millions of people around the world have been lifted out of poverty. Given the opportunity to trade and to pursue their dreams in free markets and free nations, people can rise above even the most difficult adversities.
Protectionism has also found voice in the national security debate in the US. Following the Dubai Port furore, many called for severe restrictions on foreign investment. We all share a desire to protect our own country – a nation has no greater obligation than to protect its people. But our national security depends on a strong economy. Far from being incompatible goals, national security and economic security depend on each other.
The US has a mechanism in place called the Committee on Foreign Investment in the United States (CFIUS) to vet foreign acquisitions and ensure that those deals do not compromise national security. Some have recently suggested changes to the CFIUS process that would raise unnecessary hurdles for foreign investment. Such changes would discourage investment from overseas, costing jobs at home and undermining opportunities for domestic firms abroad.
New opportunities
We are living in a time where a connected, collaborative and competitive global marketplace is transforming the way the world’s economy works. These changes will bring new challenges, but they will also present new opportunities. Rather than shutting our doors to trade, we should meet these challenges head-on by providing education and job training that will help people take advantage of the opportunities of a fast-moving 21st-century global economy.
Globalisation will create new higher-paying knowledge-based jobs, raise living standards and lift millions more out of poverty around the world. Protectionism, however well intentioned, turns its back on the future, robbing people of hope and sacrificing a historic opportunity to improve millions of lives.
Donald L Evans is CEO of the Financial Services Forum and former US Secretary of Commerce.
