A reporter asked me not too long ago, "Senator, are you a protectionist?"
I responded, "No, I'm a retaliationist."
Unfortunately, that question both misses the point and does a disservice to the issue and to the Congress. Instead, we should seek agreement on what the problems are with the current trading system, what solutions are in the United States' interest, and how to legislate solutions effectively.
That kind of discussion is difficult, however, because of the myths that get in our way. I believe there are three of them.
Myth 1: Free trade prevails
The first myth, the biggest one of all, is that the world trading system is based on free trade. That is utterly wrong. A 300-page rebuttal of this commonly held myth, prepared by the U.S. trade representative (USTR), provides clear evidence that countries are getting away with economic murder by ignoring the law of comparative advantage.
Japan, for example, in protecting its infant industries for more than 20 years by keeping all kinds of competitors out, in effect provided a large subsidy that protected companies could use to enhance their research, development, and production engineering. With that advantage they could leapfrog their competitors' technology and engineering in a way that Adam Smith and other free-trade economists never anticipated.
We are no longer dealing with simple production processes that are easy to start up or replace. Nor is the labor force as mobile as economists assume. In the high-tech sector particularly, generations of products change rapidly, with earnings from sales of one generation critical to research, development, and production of the next. Dumping or subsidies by foreign governments that unfairly cost domestic producers' market share also make it impossible for them to recover such investments through subsequent product development. The Japanese have shown themselves to be masters of the tactic of capturing market share literally at any cost and then holding on to it tenaciously. The result is that American competitors suffer severely.
Without question the best known protectionist nation is Japan. The United States has had market-opening or trade-barrier negotiations with Japan on electronics, pharmaceuticals, tobacco, aluminum, medical equipment, telecommunications, forest products, transportation machinery, semiconductors, leather, computers, wine and liquor, chocolate, construction services, and numerous agricultural products - and this is not a complete list.
Another example is Brazil, which has a very direct method of distorting the market. Brazil has a law permitting the government to block the importation of anything that is also produced in Brazil - and the Brazilians use it. They have a market-reserve policy that allows for the total exclusion of both foreign investment and imports from selected sectors.
Some 38 other countries in the USTR report are implementing, in varying degrees, the same system that Japan in its way and Brazil in a
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