Federal Reserve Chairman Ben Bernanke is under fire for attacking tariffs and quotas. He believes that curbing international trade will blunt our competitive edge in a global market, and he's right on the money. Yet Congress and President George W. Bush, a free-trader, face enormous political pressure to protect American manufacturers and workers from low-wage competitors, China chief among them.
Isolationists passionately offer soaring trade deficits - including a record $233 billion with China last year - as incontrovertible evidence that protectionist policies must be adopted. They insist that only by erecting impenetrable trade barriers can we stanch the flood of imports, which they blame for the loss of millions of American jobs and the continuing impoverishment of countless workers in the developing world. Princeton economist Alan Blinder, to name one prominent isolationist, recently warned that over the next 20 years, 40 million jobs may be shipped overseas.
But retreating from international competition would dampen productivity at American companies and reduce the standard of living in American households. The economic interdependence of nations benefits U.S. businesses with higher output, U.S. consumers with lower prices and U.S. workers with more and better jobs. And the global economy is pulling hundreds of millions of Asians, Africans and Latin Americans out of poverty and into an emerging middle class.
The job loss Mr. Blinder fears will be offset by job creation largely attributable to global trade. Knowledge-based fields, including financial services and technology, have already supplanted the Rust Belt's heavy industry.
The global market enhances competition, especially in Illinois , the fifth-largest exporting state in the country. Companies here increased exports to more than $42 billion last year, up $6.2 billion over 2005 exports, according to data recently released by the World Institute for Strategic Economic Research.
Mr. Bernanke's rap against isolationism shouldn't be countered by a futile and destructive plea to go it alone. The historical record is clear: Seeking to protect jobs may be the best way to lose them. The infamous Smoot-Hawley Tariff Act, which raised U.S. tariffs on more than 20,000 imported goods to record levels, helped plunge the United States into the Great Depression, which pink-slipped one in four American workers.
Instead, compassionate policymakers need to enact wage insurance and portable health insurance for victims of outsourcing and job displacement; beef up market-responsive government retraining programs, and revamp the educational system to prepare tomorrow's workers for tomorrow's jobs with higher-level skills.
Our leaders must ease the pain of dislocation while embracing economic growth and change. In the global marketplace, America must compete, not retreat.
Reprinted with permission from Crain Communication Inc., Copyright 2007.