Protectionism is the economic policy of restraining trade between states, through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to discourage imports. It also applies to measures intended to prevent any foreign take-over of native markets and companies.
Most protectionist arguments begin from the implied assumption that domestic producers are entitled to the business of the country's population, and that foreign producers are somehow stealing from the domestic producers.
These policies that restrict trade, generally support the producer's position, normally to the detriment of consumers and of the general public. Trade restrictions are essentially welfare programs for corporations, a form of income redistribution. In the US, all protectionism forms a classic example of special interest groups using the force of government to obtain benefits at the expense of the majority.
The arguments against protectionism are sound and well-known, but the practice doesn't die, and the main reason is that the 'special interest groups' - steel-makers, auto manufacturers, the textile industry - can gain hugely by the help of their government in restricting foreign competition. On the other hand, the consumers who all lose a little from these measures are often unaware.
A typical example would be a tariff on foreign garments, which has the effect of making foreign goods more expensive and also permitting domestic companies to substantially raise their prices. With a tariff (to protect domestic manufacturers), 300 million Americans will pay (say) $20 more for a pair of blue jeans so that two or three domestic companies can earn an extra 20 million in profits.
Beginning in the late 1700s and early 1800s, the US was already learning the benefits of protectionism and experimented with various tariffs on imports. Once industrialization started, the demand for higher and higher tariffs came from manufacturers and factory workers. They believed that Americans should be protected from the "low" wages of Europe. The culmination of that, came in the Tariff Acts of 1828, with duties averaging over 50 percent.
American industry and agriculture, and industrial workers, had become the most efficient in the world by the 1880s, and were not at risk from cheap imports. No other country had the industrial capacity, the high efficiency and low costs, or the complex distribution system needed to compete in the vast American market. Nevertheless American manufacturers demanded that high tariffs be maintained.
A US senator claimed the United States grew economically strong and prosperous because of trade barriers. In his view, the United States had "gone from an agrarian coastal republic to become the greatest industrial power the world had ever seen — in a single century. Such was the success of the policy called protectionism that is so disparaged today."
He is probably correct in his assumption - US industrial success is probably due to the constant and pervasive protectionist measures, as much as to anything else.
The US did negotiate in the creation of GATT - later to become the WTO, and NAFTA - the North American Free Trade Agreement, but these were done largely to open other markets to US firms, and much of the original protectionist measures remained - especially in agricultural products.
America entered into trade agreements with many nations, largely expecting to win on all fronts. But that didn't happen in all cases, and the Right is now crying that free trade is lacking in benefits for the US. But in fact, free trade has lowered daily costs for millions of items and has kept US inflation near zero. It raised the standard of living of all Americans because they can buy more with the same money.
The first current, as we've already seen, is mercatilist - the pursuit of profit for domestic manufacturers at the expense of foreign producers. The second is ideological, which in some ways may be more difficult to combat.
A major part of the conservative Right-Wing ideology is the Jingoism - the excessively patriotic belief that the US is always right, that US corporations are the most efficient and produce the highest-quality goods in the world.
A natural conclusion from this set of beliefs is that if any nation surpasses the US in any way, it can be only because they are cheating. It is this extreme ideology that results in much of the bad press and most of the trade sanctions against other countries.
Since the 1800s, the US has always been among the most protectionist of all countries.
The US consistently preaches free trade abroad while practicing protectionism at home, and generally follows the principles of free trade only when it is to America's advantage to do so. It is unfortunate that in spite of the constant high volume of noise made by the US Right about 'a level playing field' and fairness, the US itself follows no such principles.
It is relatively painless for a US company to obtain government assistance against foreign competition. They need only request an investigation and the US government will supply all the lawyers needed. The foreign companies, on the other hand, must often spend millions to defend themselves against accusations that are often groundless.
It isn't always necessary to actually impose the tariffs or other duties on imports. The US has created laws permitting the government to investigate possibilities of 'unfair trade', and often, these 'trade investigations' are sufficient in themselves to destroy foreign competitors. They can demand unlimited quantities of documents with short turnaround time and can impose crushing penalties for failure to comply. The US Commerce Department and the U.S. International Trade Commission have been ruthless in applying these prosecutions to protect domestic industry.
In one case, Matsushita withdrew from an antidumping case and abandoned more than $50 million in export sales, because the Commerce Department demanded on a Friday that it translate 3,000 pages of Japanese financial documents into English by the following Monday morning.
"In another case, the Commerce Department demanded that the management of a small Taiwan company supply it with more than 200,000 pieces of information and reply to a 100-page questionnaire that was written in English. But the management of the company consisted of a husband and wife, and they were unable to respond. Because of the failure of this and other Taiwanese companies to respond to the Commerce Department's demands for information, Taiwanese sweaters now have a 21.94% dumping duty which, when combined with a 34% tariff, makes it very difficult to make a profit in the U.S. market. Within a year from the time this investigation started, more than two-thirds of the companies that produce acrylic sweaters in Taiwan went out of business, which did not do much for international relations."
It was in great evidence against Japan in that country's golden years of the 1980s, when the US became genuinely afraid of Japan's productive capacity. Japan's success in the export markets led Americans to refer to the Japanese as 'supermen', and there was great fear generated when Japan suddenly began buying Universal Studios, Columbia Records, the Rockefeller Center, and more. There were articles writing about "The Yellow Peril", and "Where will Japan strike next?"
In all of that, Americans believed Japan was somehow 'cheating', just as with China today. The US adopted countless protectionist measures designed to combat Japan's manufacturing advantages. They levied a 50% duty on Japanese motorcycles to protect Harley-Davidson, they forced Japan's agreement to 'voluntary import restrictions' on the number of autos exported to the US. President Reagan even proposed a 100% tax on all products made in Japan.
But these measures proved insufficient to forestall Japan's rise, so, in one of the greatest protectionist measures of all time, the US inflicted great pressure on Japan to revalue the Yen upward - the 1985 "Plaza Agreement". Just as with the RMB today, the US claimed that Japan's currency was too low, even though it had already appreciated from 360:1 to 240:1. In three years, the Yen went from 240:1 to 150:1 to 120:1, meaning it had doubled in value against the US dollar. That 100% revaluation crippled the Japanese economy, and it has not recovered to this day.
Several years ago, the US forestry industry was having a rough patch. The US dollar was high and Canadian lumber (for building houses) was relatively much cheaper. So the US Government arbitrarily levied a punitive duty of about 40% on all Canadian lumber.
The Canadian forestry companies were not cheating or being subsidised, but US companies couldn’t compete so the government ‘leveled the playing field' by an illegal duty that made Canadian products so expensive that exports died, and which bankrupted much of the Canadian forest industry.
To make matters worse, the “duty” was paid not to the US government, but to the US forestry companies - in the interests of 'fairness', presumably. So now the US lumber companies had a closed lumber market in which Canada would have to pay the US producers TWICE the cost differential if they wanted to export to the US.
Of course, the WTO ruled that this was illegal and that all the duties collected had to be refunded, but by then almost three years had passed, the US dollar was down again and the Canadian industry was no longer a threat. So, the US dropped the tariffs, but all the damage was done. In spite of the illegality of the duties, the US demanded that Canada 'negotiate' the amount of duties to actually be repaid, and eventually repaid only about half of the money collected. The alternative would have been more years of protracted and unpleasant negotiations.
By then, the US forestry giants were then left flush with cash (paid by the Canadian companies) and ready to buy up all the (nearly destitute) Canadian companies with their own money.
There may be no product category more deserving of contempt than that of agriculture in the US. The blatant protectionism is at an astonishing level. The US sells rice in Haiti at prices lower than Haiti's domestic costs of production - a subsidy of probably 80% or more. The same is true of sugar cane, ethanol, and a multitude of other products.
The US heavily subsidises its agricultural sector which encourages overproduction, generating surpluses that are then dumped on the world markets at prices well below production levels, while posting tariff and other barriers on sector imports. The poorer countries suffer the most. The last US farm bill increased subsidies yet again, and South America alone is projected to lose tens of billions of dollars in agricultural exports.
Brazil can produce ethanol at 10% of the US costs, so the US imposed a tariff of 50 cents per liter on foreign ethanol while paying US producers a subsidy of another 50 cents. That's called 'leveling the playing field', with the result that Americans pay far more for ethanol-blended gasoline and Brazil is shut out of export markets.
Some time in the 1950s Canada awoke one morning to discover that the US owned almost the whole country. Almost all manufacturing, almost the entire oil and gas industry, most transportation, distribution, wholesaling, were American-owned.
Every book used in Canadian schools and universities was written and published in the US; almost every TV program was American. And so on.
It took Canada a long time to repurchase itself, but that scenario was typical for the US. They used their size and power as well as times of a strong currency to buy up large sectors of many countries.
But it is always a surprise to see how negatively the US reacts to anyone trying to do that to them. When Japan began buying assets in the US in the 1980s, there was hell to pay. Rhetoric in the media was so strong it seemed another war was imminent.
China is suffering the same fate today. China's CNOOC was refused the purchase of Unocal because it was 'a strategic asset'. When Haier tried to buy a major US household appliance manufacturer, another US company overpaid by maybe 20% just to keep it out of China's hands.
It is a great national embarrassment that Canada's government applied the same US Right-Wing standards when China Minmetals wanted to purchase Noranda. Canada was under great pressure from the US Right, to block the sale. Since Canada had a Liberal government in power at the time, I believe the sale would have been completed, had it not died for other reasons.
It is due to this Right-Wing Capitalist model that Americans have their overwhelming sense of entitlement to colonising the world and react so ferociously to the opposite taking place. "We can buy you, but you can't buy us." The US Capitalist Right sees itself at a far higher level than the rest of the world, as a King looks down upon his subjects. Any approach by a foreign company to take over any significant part of American business is seen as a political, and possibly a military, challenge.
The US government will assist American corporations in obtaining freedom to purchase any and all viable assets in all other countries, and will support this with the military, if necessary. In fact, this is one of the main reasons for the existence of the US military - to force by threat the commercial domination of industry sectors around the globe. Financial services is one of these, the the US have pushed very hard in many countries, including China, for the power to take control of the banking and financial sectors.
And US companies seek domination, because the US capitalist model is a predatory one - accept no surrenders and take no prisoners. If possible, all competition is to be eliminated, and the ideal market share is always 100%. It isn't enough to just enter a market; they want to own it.
Often, they will purchase the major players in an industry and close them down just to kill the brands. And then begin distributing American brands when there no longer is any consumer choice. If anyone tried to do that in the US market, there would be a war and hundreds of new laws would be passed to prevent foreign ownership.
A large factor in all of this, is US global dominance. America genuinely wants to be the biggest, best and most powerful country in the world, by a sufficiently large measure that no nation could offer a challenge. This is not only military, but political, economic and commercial, largely the right wing agenda.
The good ship US is nowhere near as free and open and dedicated to market freedoms as the Jingoism suggests. That theory applies only when the US is doing the buying and the winning.