Protectionist Pressures Grow

Economists at Economy.com are concerned that protectionists may have their way, at least in part, as next year's elections move closer.

Industry groups and unions are stalking the halls of the U.S. Congress demanding protection from foreign competition. With the 2004 elections in view, and worried by a slow recovery in jobs, some fear that Congress appears ready to oblige the protectionists’ demands. This will be a mistake because protectionism will not stem the loss of jobs in manufacturing or elsewhere – rather, consumers will pay higher prices from lower real incomes – while jobs will continue to bleed.

A jobless recovery and rising merchandise trade deficit are raising concern in the U.S. Congress that the economy may be in serious trouble. The fear is reinforced by incessant demands by some industry groups and trade unions for protection from “unfair” competition from foreign countries. China has replaced Japan as the favorite whipping boy. The approaching national election increases the probability that the Congress may succumb to pressures and impose damaging tariffs on imports, such as the 27.5% across the board tariff on Chinese imports under consideration on Capitol Hill, which, by the way, will be in violation of the WTO agreement.

Most jobs lost in manufacturing are due to gains in labor productivity although, in the last few years, roughly a third of the loss may be due to imports. Most of the jobs lost to imports are in highly labor intensive manufacturing such as apparel and leather, products where China has a comparative advantage. After the end of the last recession, manufacturing output has stabilized and is showing signs of a robust rebound. Unfortunately the same is not true of manufacturing employment. Manufacturing employment is on a long-term downward trend.

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