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COMMENTARY: The wrong mirror

Developed nations harkening back to manufacturing's glory days resemble that which they oppose

By: Eric Johnson
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Photo: Humphery/Shutterstock
   It’s hard to argue that a wave of protectionist attitudes toward trade is sweeping through developing regions.
   And those attitudes aren’t even directly tied to the UK’s Brexit vote, the election of Donald Trump as U.S. president, or coming elections in continental Europe that could swing toward protectionist candidates.
   In July 2016, the WTO issued a report that warned against rising protectionist actions globally by existing governments (in other words, not related to Brexit or Trump). The rate of trade-restrictive measures taken by WTO members between mid-October 2015 and mid-May 2016 had risen to 22 per month on an aggregate basis, the highest level since 2011.
   In that context, one can view the Brexit-Trump phenomena as symptoms of the issue, not the issue itself.
   Indeed, it’s hard to argue against the idea that protectionism is on the rise. Data from Thomson Reuters suggests the trade-weighted average global tariff rate has been rising since 2015, bucking a decades-long trend of significant decline.
   More than that, developing nations are sounding jingoistic tones around protecting and stoking their manufacturing bases, slapping import tariffs or taxes on goods, and stemming the flow of immigrants.
   Yet, when developed countries try to establish protectionist policies to stimulate production and artificially create manufacturing jobs, they sound an awful lot like another type of country: a developing country.
   For decades in the 20th century, developing countries wanting to grow their production capability and expertise did so by enacting strict protectionist policies that shielded local industry from competing with better foreign producers of a product. Imported products faced sky-high tariffs as the policies ensured jobs. But the ultimate goal, it seems in retrospect, was for the developing economies to build the capability to produce world-class goods and then export them to other countries that didn’t have such restrictive tariffs.
   This is essentially what Trump has railed against in his campaign and the early days of his term: that other countries benefitted disproportionately from the United States’ laissez-faire attitude toward protecting its manufacturing base.
   There are three threads to explore here:

   1) Enacting protectionist policies is a perfectly defendable approach to building up a country’s manufacturing sector, but those selling that policy should be clear about the process. It will take years of sacrifice to rebuild the U.S. manufacturing sector to what it was in the mid-20th century.
   2) Those seeking manufacturing jobs in this recast economy must be willing to accept conditions commensurate with their work. As Don Ratajczak, an economist with Georgia State University, put it this week at an industry conference: there’s a reason all those derelict factories Trump has cited are in poorer rural areas. Once upon a time, manufacturers sought out “cheaper hands,” which prompted factories to move from urban areas to rural ones. Globalization then moved the location of those cheaper hands to other countries. But the manufacturing jobs that might come back won’t all be pretty, or tied to high-value goods.
   3) While Asia’s emerging economies originally sought to become sourcing locations to lessen poverty, they eventually transitioned to learning how to make better goods, and then targeted higher-value categories of goods. The situation is reversed in the United States, where manufacturing tends to be confined to high-value, highly-skilled jobs. Will some of the displaced manufacturing workforce be amenable to taking factory jobs that are somewhat less prestigious, lower paying, and less skilled?

   There are many questions and fewer answers, to this point, about the policies that U.S. and European leaders plan to enact to stimulate internal job growth.
   But it’s instructive to note that many of the policies being talked about don’t resemble the free market ideals of the mid-century United States so much as they do the policies of developing nations.