Perspectives

Perspectives

Are trade barriers a threat to the global economy?
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As the world economy teeters, the impulse is to institute protectionist trade restrictions to insulate national interests. Jerry Cohen, retired CEO of DTI, a manufacturer of die casting machinery sold globally, and Brittney Smith ’08, with DHL Global Forwarding and a research intern for Global ID LLC, weigh in on the topic.

Smith: Protectionism can no longer exist. Restricting trade has proven time and again to cause more harm than good. The countries of the world have steadily become more intertwined as each trades with its own comparative advantage in hopes of receiving cheaper goods and services from abroad. This connected world is reflected in today’s current economic situation. One country — the United States — began a decline, and like dominoes all lined up, the collapse of one economy led to the fall of others.

Globalization is the easiest force to blame for this worldly recession. But political corruption and greed aside, looking back on our history, we see that opening of borders to the free flow of goods and services — with fair and limited regulation — increases productivity and lifts the economy. During the Great Depression, the United States imposed The Tariff Act of 1930, ultimately leading to a decrease in foreign exports as other countries followed suit. Fewer exports resulted in reduced revenues.

Many goods are produced among groups of countries, and not just in a single nation as in the past. American cars may be put together in America with parts from nations and companies outside the United States. When borders are closed and trade shrinks, this integrated supply chain breaks down and the pain is felt globally. It is obvious governments want to protect domestic interests, but looking ahead to better times, the only way these interests will be kept safe is if trade continues without hindrances.

Cohen: Business in an interdependent, competitive global economy, with access to selective real and, or artificial trade barriers, enforceable oversight and regulatory authority is vital for survival and success in the current world economy. Historically, trade barriers have created numerous industry successes. Nations, governments, businesses and groups employ them to protect their own business interests and prevent outside competitors from disrupting their native commercial ventures.

Early into the 21st century, outcomes of free trade without barriers have created global apprehension, uncertainty and havoc in an international playing field which is far from level, whether part of developed or developing economies.

Cotton has been the historic recipient of trade barrier protection for numerous developing and mature economies, creating successful enterprises globally in the process. It typifies the need for trade barrier protection as a means to success. Based on a natural crop grown throughout the world, as cotton is refined, it creates demand for manufacturing bases for growth, harvesting, production and distribution of finished goods. Every successful business involved anywhere in the cotton supply chain has been, or still is, the beneficiary of some form of trade protection.

Developed industrialized economies of the U.S. and other nations confront threats to their survival, and are urging formulation of protective trade barriers for their most vulnerable industries. Developing and underdeveloped economies have little hope of success without some form of trade barrier protection for their fledgling industries. Trade barrier protection helps create and maintain relative conditions for sustained decent standards of living for all.