Governments around the world rail against "protectionism" while simultaneously putting up barriers to trade which contrast their own public statements. All governments are up in arms when a current or potential trade partner begins instituting tariffs or import duties to foster domestic growth. At the same time these countries try to get away with their own protectionist measures without incurring a similar wrath.The biggest problem is a simple misunderstanding of "protectionism" as well as its effects on the economy.
Too many individuals look at the Great Depression and blame protectionism in a blanket statement on the entire episode. The Depression lasted for over a decade and resulted in one of the greatest economic catastrophes in the world's history. Yet the entire situation is often wrongly attributed to a single economic policy provision: the Smoot-Hawley Tariff.
Before, during and after the Great Depression the United States exported more goods than it imported, it was a creditor and an exporter to the world. When the United States raised its economic guard in response to the crashing economy it did so when it was at an advantage. In essence, the United States undermined itself by cutting down its own market for export and finance. This led to rampant deflation and job loss.
However, the economic tailspin began well before any "protectionism" measures were in place. American home values were vastly over inflated and stock options were trading well above their real value. Most importantly the American people relied heavily on credit and debt accumulation to finance their standards of living. This is the same situation we see today, with the same projected results.Today, America has no manufacturing to speak of and it is in perhaps the world's most precarious financial situation. Protectionism can dampen vibrant economies. In the end, after a decade of focusing its energy on domestic production, the U.S. emerged in the 1940s as a remade and centralized industrial juggernaut.
In modern America, most consumption is purchased from overseas--be it fuel, food or commercial goods. Protectionism in our modern system would actually encourage production instead of stamping it down because protectionism promotes domestic growth. The United States has the resources necessary to build almost anything it needs, yet we choose to purchase these things overseas where they are cheaper--in both senses of the word "cheap."After the Great Depression, it was found that protectionism created a national, instead of global, economy which served our best interests for almost 40 years. Economic liberalization over the last 20 to 30 years has had the effect of reversing almost all of the hard-fought progress of the Depression era. We cannot simply cut ourselves off from the entire global system, but we can and should take steps to "protect" American interests and American companies. Other countries do, and have been doing, the exact same thing.