Sunday, October 14, 2012

A case for Protectionism? It was always there...

"Protectionism" today is a bad word. In the context of multilateral trade rules, it is forbidden and regressive. Countries publicly eschew protectionist measures, but in practice as is seen, follow them rather regularly. At times, it is argued that developing countries and emerging economies use protectionist tools more than the developed world. Actual study of policies may give a strikingly different picture. Is there a case for "protectionism"? Does history prove us different and surprising lessons?

David Todd in his "Protectionism as Internationalist Liberalism" explores this historical context from 1789-1914 where he argues that Germany, France and the United States have used "protectionist" policies as part of their official policy to counter the rise of U.K. He also puts forth the view that "protectionism" has been part of the larger liberal, internationalist, egalitarian left response to neo-liberalist philosophy since the 18th century and is not something invented in the 1930s.
"From the end of the nineteenth century, especially in Germany, protectionism has thus clearly nourished the xenophobic nationalism that ravaged Europe between 1914 and 1945. But the examples of Thiers, List and Carey show that protectionism was initially the result of intellectual exchanges among “dominated” nations, directed against the dominant power of the British Empire, rather than the expression of a thirst for nationalist domination. These examples also suggest that protectionism was often the economic aspect of an egalitarian liberalism of the left or the centre left, which put the citizen above the consumer. Contrary to the beliefs of many of their respective supporters, in our time as in the nineteenth century, the struggle between free trade and protectionism is not a conflict between good and evil. Tariff barriers do not mechanically lead to war any more than free trade guarantees peace, as is shown by the commercial treaty between France and Prussia in 1862, which did not prevent the outbreak of the Franco-Prussian War in 1870. Tariffs are no more and no less than taxes on imports, which – like all taxes – have both adverse and positive effects on wealth creation. As for their political significance and their economic consequences, these have varied considerably throughout history."
I am not a student of international economic history but this piece raises important questions - is there a good and bad in international trade theory at all or is it a matter of circumstance? Is reduced trade barriers and freer trade , ipso facto, good while "protectionist" measures bad? Do multilateral trade rules stereotype philosophical attitudes of free trade, protectionism and protection of domestic industry? Is there scope within the multilateral trade rules to be reasonably "protectionist"? Perhaps the "Free Traders" would have a far more convincing response to these queries. 


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