Protecting your own

Barely did his feet settle under the table of the Oval Office than Barack Obama has had the EU hounding at his door. As much as I may despair at the bureaucracy in Brussels, when it comes to making statements about free markets and trade, the EU is usually on the money.

The ‘Buy American’ policy the USA is proposing in their massive recovery package seems to be attracting a lot of fire, and echoes with our current ‘British Jobs for British Workers’ palaver. It’s not just the EU - the Canadians are antsy about it too, along with the best part of the participants at Davos. America In the World have suggested that 70% of Britons will be less favourable to Obama if he implements a protectionist policy; we Brits have good reason for feeling that way. America is a world leader, promoter of capitalism and up ‘til now, a shining example of the free market (at least on the surface). If anything, America needs to be defending those principles and seeking to restore our faith.

The critics are dead right. A protectionist policy would do more to harm the US and slow the global recovery than it would protect American jobs. Sure, in the short term it might sound like a great idea, but free trade works on the principle of swings and roundabouts – you may lose on one thing but you gain on the other. It forces companies and entrepreneurs to be better than their competitors if they want to succeed. Protectionist leads to ‘jobs for the boys’ and suffocates competition, which in turn stifles innovation, so on and so forth.

It’s a crowd pleasing idea that makes it sound like you’re standing up for the masses, when the reality is that in the long-run, you’re going to make things worse for them.

Sourcing from local suppliers isn’t necessarily a bad thing, and you may have ample justification for doing so, but it needs to be on sound economic terms and you need to encourage competition for that business.

I’m pretty sure I heard rumblings about this even before the ballot boxes in the US had closed. Obama is playing a populist card with his stimulus package, and I wonder if he’s getting a bit too caught up in playing to his electorate rather than doing what is best for them in the long run. The global effect is likely to be marked as well, and it sets an awful example for other nations. Tit will inevitably follow tat, and governments would end up subsidising local businesses and products produced nationally. This would be an utter disaster for the global economy.

The US has a massive budget deficit inherited from the previous administration and it has to deal with this. Any incoming government in the UK is going to have the same problem, but the US has an advantage we lack – it is a major exporter. Protectionism isn’t the answer – John Redwood nails it when he says that borrowing less and exporting more is.

Of course, given that about the only thing we export these days is Whisky, I’m not sure how we’re going to solve that particular problem any time soon.

Maybe we can just get the rest of the world drunk?