The Perils of Protectionism: Part II

Tom Peters

Last week’s column outlined five pitfalls of protectionism, from the cost to the consumer, to the negative impact on our most efficient industries. The list of untoward consequences is much longer, however.

6. INDUCES SLUGGISHNESS: Overall trade flow contracts (and along with it, societal well-being), because of the general level of uncertainty that a poisoned protectionist environment creates.

7. BEGETS MORE PROTECTION*. “Playing fields,” of course, are never truly level, so one can always find evidence of unfairness. Once the ball gets rolling, the lobbyists’ pleas spiral in industry after industry—witness the hundreds of “special-case” riders to the trade bill.

8. BRINGS OUT THE WORST INSTINCTS IN CONGRESS: Protectionism is a convenient way to impose palatable, mainly invisible costs on lots of people ($100 more per year, per family, for garments, for instance), in return for big, short-term benefits for a relatively few visible, put-upon jobholders in the Member’s home district.

9. FAILS TO DEAL WITH ROOT CAUSES OF COMPETITIVE DISADVANTAGE: For example, protectionism cannot overcome our problems with Japan. We can’t legislate against that nation’s obsession for quality nor their passion for worker training and involvement. We can’t change their complex distribution systems, or Japanese managers’ willingness to take on long and arduous overseas assignments. Most of the true barriers to opening markets fall beyond the ken of tariff or non-tariff restrictions.

10. PAPERS OVER OUR MOST SERIOUS DOMESTIC WEAKNESSES: Industry after industry faces problems with product quality. Protectionism hinders our effort to become quality oriented, by taking the heat off our worst offenders. Likewise, after the easygoing post-World War II years, protectionism stymies our already pathetic efforts toward very, very patient overseas market development.

11. CAUSES RESTRICTED COMPETITORS TO HASTILY MOVE PRODUCTION TO THE U.S: This is partially positive insofar as it saves some jobs. But the U.S. often gets the lowest price (assembly) jobs, while the high value-added/high-priced labor, such as that required for sophisticated sub-components, stays overseas (witness Honda or Nissan.

12. SLOWS INNOVATION: Innovation comes from the free exchange of information across borders, which is slowed by a climate of trade restrictions. Protectionist attitudes in the U.S. today are boiling over into areas such as increased copyright protection. Such restrictions, always accompanied by attractive intellectual arguments, nonetheless slow the exchange of ideas and then new products.

13. DETERS ESSENTIAL ONCE-A-CENTURY RESTRUCTURING: America’s best bet for the future—wide open capitalism, led by somewhat small, innovative firms—is blunted by the constrictionist attitudes. Protectionism reduces the freedom of capital markets, protects big and often inefficient firms, and leads to anti-competitive collusion between big labor, big business and big government.

14. DOESN’T HELP INFANT INDUSTRIES, EITHER: The one almost compelling argument for protectionism involves infant industries. But grave problems are hidden here, too. Once an industry, old or new, gets hooked on price advantages that come from protectionism, it is virtually impossible to wean it away.

15. CRIPPLES DEVELOPING NATIONS: Because developing countries’ debt situation remains critical, we have demanded that they restrict their domestic consumption and concentrate on exports. To then turn around and restrict their exports—as we are doing—is sheer lunacy.

16. THREATENS DEEPER POLITICAL INSTABILITIES: Throughout history, trade wars and the attendant name-calling (or worse) have deteriorated into national security concerns. Japan, for example, is the world’s best model, along with the U.S., of democracy and capitalism. Our security, directly and indirectly, depends upon Japan as a vigorous, pro-American ally; in the face of a virulent trade war, how can we count on its staunch support?

The best reason for confidently predicting that protectionism will not work is that we are much more protectionist today than a decade ago, and it is not working. The percentage of U.S. imports that are subject to restrictions shot up from 8 percent in 1975 to 21 percent in 1984. Furthermore, our average tariff is now higher than most others’, including Japan’s. Moreover, our trade with Japan has deteriorated even as the wage gap between us has radically narrowed, thus destroying the myth of the labor-cost-gap theory of American disadvantage. The next theory, the overvalued dollar as cause of comparative disadvantage, is looking shakier with each month’s fall of the dollar. There is—and will be—no end to the rationalizations. Finally, all of the major theories, which usually are aimed at Japan almost exclusively, ignore our deteriorating situation with practically everyone else.

“Competitiveness is a microeconomic issue,” the Chairman of Toyota declared recently. I agree. Mandated restriction of trade simply is not the solution to our international woes. The time has come to quit complaining and speed up the painful restructuring of our individual firms’ management practices.