Protectionism Is Not the Answer

Los Angeles, CA (TFC) – Since Donald Trump announced his candidacy for the presidency, he has ridden a wave of right-wing populism to become the Republican presidential nominee. Throughout this entire process, he has adopted a protectionist, anti-immigration, and nativist political platform. While Trump’s success in politics has shocked the American public, his rise is only part of a global trend towards protectionism as political parties like UKIP in the UK, the National Front in France, and AfD in Germany have steadily gained in the polls. All of these protectionist political parties claim that their policies will “make their country great again.” However, there is no economic basis to these claims and implementing these protectionist policies will cause severe damage to the global economy.

Since the end of World War II, the world has rapidly become more globalized and connected. However, since the 2008 Financial Crisis, the world has experienced a period of unprecedented economic stagnation, leaving hundreds of millions of people impoverished and facing a bleak future. Unfortunately, this has fostered political discontent and extremism throughout the world. Like previous times of economic hardship, this has encouraged the rise of nationalistic, right-wing political forces that have rejected globalization. The rise of the Brexit movement in the UK and Euroskeptic political parties reflect this trend.

The US has also experienced this trend as Trump (and to a much lesser extent, Bernie Sanders) have demonstrated protectionist tendencies and have shown varying levels of aversion to free trade and globalization. Donald Trump, however, has taken an extremely right-wing and nationalist position on globalization and has advocated for numerous protectionist policies. Most notably he has argued that many of America’s economic interactions with the global economy are “bad deals.” He has argued that American jobs have disappeared as manufacturing and blue-collar jobs have disappeared overseas to more economically competitive countries. To counter this, Trump has basically proposed starting a trade war with countries, who give America a “bad deal,” to force them to renegotiate the terms of trade. In addition, he has claimed that immigrants are “stealing” jobs from Americans and has proposed the deportation of illegal immigrants and the building of a gigantic wall to prevent further migration. The underlying theme behind these “policy” proposals is that disengagement from the global economic community will bring back jobs and restore American prosperity.

History, however, demonstrates the folly of Trump’s economic approach. Trump’s proposal to implement harsh trade barriers to “protect” the American economy has been attempted in the past. In 1929, the United States was in a similar economic situation as it currently is in today. On October 24, 1929, which would become known as Black Friday, Wall Street suffered gigantic losses that wiped out large amounts of wealth. This event, which marked the beginning of the Great Depression, caused widespread economic misery in the US and across the globe. The Depression eventually sparked political pressure to institute policies to help protect American domestic industries. In response to this pressure, Congress passed the Smoot-Hawley Tariff Act, which enacted high tariffs with the goal of protecting American industry.

Image Source: Gage Skidmore, Flickr, Creative Commons Donald Trump Donald Trump at CPAC 2011 in Washington, D.C.

Image Source: Gage Skidmore, Flickr, Creative Commons
Donald Trump
Donald Trump at CPAC 2011 in Washington, D.C.

The Smoot-Hawley Tariff Act, however, backfired as it started a global trade war. Other countries took retaliatory trade measures in response to these tariffs. Canada, who was America’s largest trade partner at the time, was particularly vindictive and attempted to convince the entire British Commonwealth to enact retaliatory trade barriers on the US. Other European countries followed suit and these trade barriers reduced America’s ability to export to foreign markets, which harmed American industry. As a result, this trade war caused large amounts of economic damage to the US. Many economists believe that the Smoot-Hawley Tariff Act was so damaging to the US economy that it worsened the Great Depression. In addition, it greatly reduced international trade and devastated the global economy.

Trump’s anti-immigration proposals will also cause economic damage. Contrary to popular belief, immigration contributes to the American economy. When immigrants arrive in America, they work for companies that operate in the US, contributing to the labor force. In addition, the vast majority of their earnings are spent on American goods, services, and housing which helps the economy as a whole and generates tax revenue. Since there are millions of immigrants in the United States, they represent a significant amount of American economic activity. As a result, if Trump were to implement his proposal to expel immigrants, we would forgo their contribution to the economy and the American economy would probably contract. America is also currently facing a labor shortage in sectors that immigrants typically work in, meaning that American industry would also be harmed. In addition, the costs of building a wall along the Mexican border and rounding up, initiating legal proceedings against, and deporting these immigrants would be gigantic. As a result, attempts to crack down on immigration will cause massive damage to the American economy.

During this election cycle, Donald Trump’s protectionist policies have become more and more popular. The people who support these policies believe that they will restore America’s prosperity. The reality, however, is that protectionism does not promote prosperity or economic growth in developed, high-income countries. With this in mind, it should be noted that there are legitimate concerns about international trade and immigration that need to be addressed. However, protectionist and autarkic policies have historically been very damaging to developed countries and are, therefore, not viable solutions to these problems. As a result, the public needs to reject protectionism. If we fail to do this, I fear that the global economy will suffer even more damage, which will breed further political discontent and extremism.