Today's Opinions, Tomorrow's Reality 


Protectionism out of Prosperity

By David G. Young

WASHINGTON, DC, March 23, 1999 --  

It was exactly 10 years ago when America's high tech sector was reaching its darkest hour. Low-cost Japanese microchips were displacing traditional Silicon Valley products. U.S. policymakers and industry analysts were terrified. For a decade, they had watched key industrial sectors knocked from supremacy by foreign competition. Losing the cutting-edge DRAM* market to the Japanese was seen as a critical blow to America's economic leadership.

Calls for protectionist legislation were the strongest since the Great Depression. Amazingly, however, cooler heads prevailed. The worldwide recession that began in 1990 hit Japan longer and harder than the rest of the world, leading to a return of America's confidence. By 1993, the U.S. had actually lowered trade barriers with Mexico and Canada via the North American Free Trade Agreement. Free trade, it seemed, was riding high.

Until last week. For the first time in years, the U.S. House of Representatives voted to place strict new quotas on imports to protect U.S. industry. Despite an unprecedented period of economic growth, a stock market surging to record heights, and a dominant U.S. position in cutting edge technology, Congressmen are pursuing a protectionist agenda. What industry could possibly be so critical to warrant such a drastic policy reversal?

Steel. No joke? steel. The world's capitalist leader is preparing to abandon its free market principles for an industry that is about as cutting edge as the steam engine. The industry was all but eliminated in the U.S. by falling demand and cheap imports in the 1980s. The remaining U.S. steel mills are shells of their former selves, operating at a fraction of their peak capacity.

A new wave of cheap imports from Asia and Russia has led to a protectionist "Stand Up for Steel" campaign by the industry—a campaign that is now bearing fruit. Protectionist Republicans joined by union-loving Democrats pushed the bill through the House just one vote shy of a veto-proof margin. Faced with a likely presidential veto, it is probable that the legislation will never become law. Sadly, this isn't very reassuring.

That the U.S. Congress could produce so many protectionist votes for an obsolete industry in times of great prosperity is quite disturbing. One shudders to think what could happen in this climate if a vote were held on protecting an important industry—especially if the economy were to turn sour.

A key factor in the congressional vote on steel—as well as in forming a generally defensive U.S. trade position—is the economic crisis in emerging markets. Since the East Asian crisis began almost two years ago, foreign currencies have collapsed in countries from Thailand to Brazil. This has made their products very cheap to sell in the U.S., creating a surge of imports and a corresponding rise in the U.S. trade deficit.

Hence, a protectionist backlash.

But hold on here. Is this surge in imports really such a bad thing? The strong U.S. economy has given Americans great buying power at precisely the same time as many nations have advertised a global clearance sale. This is fantastic news for U.S. consumers. Given the bargains available, a short-term increase in the trade deficit makes perfect economic sense.

Of course, this means trouble for U.S. competitors in discounted markets. But these markets—like steel—are typically dominated by industries better suited to production in countries at an earlier stage of development. The decline of these industries in the U.S. is really just a matter of time.

To attempt to protect antiquated industries at a time like this is to betray U.S. consumers as well as the long-term health of the world economy. Americans have a great thing going. Let's not allow obsolete industries and protectionist congressmen to ruin it for the rest of us.

* Dynamic Random Access Memory: the microchip used for data storage in most personal computers and other electronic devices.

Related Web Column:

Consumers Vs. the Outhouse Economy, September 23, 1997