THE FIERCE DEBATE - 'Protectionism' vs. 'Over-Protectionism'

WHAT IS PROTECTIONISM?

Protectionism is creating all the buzz in today’s political and business forums. As the world’s leading economic powers make changes to policies, the future becomes less certain, making this rise in national business protection a point of concern for anybody and everybody.

Investopedia defines protectionism as “government actions and policies that restrict or restrain international trade, often with the intent of protecting local businesses and jobs from foreign competition.”

If used positively, protectionism could certainly be beneficial to many. If used negatively, it could initiate a chain reaction of devastation to many countries, businesses, consumers and the general population.

THE RISE OF PROTECTIONISM:

Firstly, it is important to understand there is not any one nation to single out with protectionism. It has always existed, and globalization has brought the issue to the forefront.

“Donald Trump is getting all the headlines at the moment but everybody’s doing it,” stated Head of International Trade at Gowling WLG, David Lowe.

In 2017, Reuters reported sixty of the world’s top economies implemented 7,000+ protectionist trade measures since the global financial crisis. The total tariffs at this time were over a staggering $400 billion. 

In today’s world, geo-political risks reside as globalization has not exactly worked out the way most expected. Different economic models for different regions have created a fractured marketplace. Businesses and nations are trying to figure out how this will affect their future and take measures against potential threats to their economic interests.

As a mitigation tactic against geo-political risk for top economic powerhouses such as the United States, the rise of protectionism has been leveraged to change policies and sustain national and international economic power. The EU has been implementing this approach for years as it has long been accused of being a ‘protectionism racket’, protecting their own producers with high barriers to entry.

President Trump campaigned to “Make America Great Again,” and famously stated, “Protection will bring great prosperity.” 

This is all great, but what would be the long-term impact of ‘over-protectionism’ in a global economy? How will this impact the current rise of global growth? 

The tariffs levied on the EU, China and other countries have already ignited a trade war. Breaking down NAFTA further, would likely result in additional souring between North American diplomats.  The results of playing such ‘reindeer games’ could very well be catastrophic and result in unforeseen backlash to many of the world’s nations.

Former US President, Herbert Hoover, ran on the protection ticket in the early 1900’s.  When elected, he disregarded over 1,000 economist petitions to sign the Smoot-Hawley Act on June 17, 1930 that set up protectionist trade policies for imports into the US. What followed was an intensification of the Great Depression and Hoover is now remembered as one of the worst presidents in American history.

THE RIPPLE EFFECT IN CANADA:

In Canada, 84% of CEO’s, cited being concerned with protectionism and how it will impact their organization’s future (PWC’s 2018 CEO Survey). With cross-border raw materials, products and services plentiful, the impact could be widely felt across the country. 

What are the long-term implications of NAFTA terms once finalized (if at all)?

Uncertainty is the only Certainty…

Everything from supply chain logistics, exports, imports, people, etc. will likely be affected in a manner that will impact profit margins and customer experiences.

Diplomatic relations have come a long way in the last century and ‘jaded’ approaches to protectionism can cause substantial problems across North America and globally.

Canadians consumers will likely be hindered by increased prices of international goods. Additionally, corporate restructuring could potentially follow in affected sectors. This would be a nightmare scenario for several hard workers in the economy who have come so far after enduring less than perfect market conditions over the past two decades.

GLOBAL IMPACT OF PROTECTIONISM:

Stimulate Economy:

Tariffs on foreign competitors can support a country’s growth in new industries. What this can provide companies in these industries is more time to develop competitive advantages until they are large enough to compete globally.

Protectionism also creates jobs for a nation full of talent. Quotas, tariffs and government subsidies allow companies to hire more people locally and reduce job outsourcing.

These are positive, but currency and trade war retaliation can result in diminishing marginal benefits on the above benefits.

Trade & Currency Wars:

We have seen this ‘tit-for-tat’ play out already. China has levied tariffs in response to the US policy changes against them. This will impact global businesses and make for tough times ahead for many businesses and employees involved.

Currency rates by some high export countries may remain stagnate in some cases. Keeping your currency low can encourage the purchase of imported goods as it can be attractive to foreign buyers.

For many countries, these policies can possibly result in backlash to financial services, (and other industries) which has only recently bounced back from a global financial crisis.

Business & Consumer Costs:

We as consumers will have limited choices to purchase products and services. The price of our foreign purchases would be escalated with any increased cost of manufacturing and supply chain logistics.

Businesses will need to focus on their entire supply chain environment to keep up with their competitors who adopted technology to be agile in this environment. Most will attempt to manufacture at economically optimal costs; however, business will almost always transfer additional costs to its consumers. Consumer demands may shirt as a result, forcing a resulting disruption in some industries.

International Conflict

Like it or not, money runs the world and politics. I am no way insinuating conflict will occur, nor want it to occur. Reality is that diplomatic relationship tensions, rebellions and government changes can make a big difference in times of uncertainty – both positively and negatively.

Slowing the growth of progressing or advanced countries can result in civil unrest and turmoil; thus, opening Pandora’s box to potentially deliver more problems than the world is ready for - potentially placing my hopes and dreams (image of world peace above) at risk.

CONCLUSION:

The global economic growth we have endured has raised living standards, brought millions out of extreme poverty and helped the everyday consumer find value for their hard-earned dollar.

Protectionism does have advantages as mentioned in the introduction, but I would like to make a plea to those in positions of power to plan, forecast and understand impact to the best of your abilities. 

To wind back globalization is not the same as working collectively on constructing the global geo-political and economic landscape. There are many peoples’ livelihoods at stake and those with great power, have great responsibility for their people AND people of the World. Call me optimistic, but I believe collaboration can triumph over unilateral motions to support continued global growth and sustainability.

“If we are to help heal the world, we need to remember that it is a sacred place. Our actions need to be positive statements, reminders that even in the worst times there is a world worth struggling for.”

-       Ram Dass