John Rapley - Foreign Focus THE US administration this week slapped import restrictions on textile imports from China. Coming on the heels of a recent (WTO ) World Trade Organisation ruling against American restrictions on European steel imports. It points to a growing protectionist trend in the US.
The actions seem out of tune for an administration which is committed to free trade. In fact, it appears that the Bush administration has selected a couple of industries in politically important states for high-profile treatment. The White House seems to be gambling that these carefully-calibrated measures will defuse the rising tide of American protectionism, thereby keeping globalization from going off course.
It is too early to tell if this tactic will work. But anybody watching the American evening news can see that the protectionist drumbeat is getting even louder. The US is confronting a problem that is affecting most of the world: the powerful challenge of the world's most dynamic manufacturing sector.
CHEAP PRODUCTS
Chinese manufactured goods have been flooding the world, and the country's recent accession to the WTO will only intensify this trend. American retail importers have taken advantage of the cheap products to undercut local suppliers, winning over customers.
Yet, American manufacturers have not been wholly immune to the Chinese lure. Many have adopted the "if you can't beat them join them" mantra and sourced production and assembly to cheap Chinese plants, while keeping more skills-intensive tasks at home.
From the standpoint of economic theory, this makes eminent sense. Given that the US's comparative advantage lies in knowledge-based production, it is logical to allow labour-intensive firms to die out. Moreover, competition with Chinese workers puts American labourers on the defensive: throughout the 1990s, American wages remained flat while worker productivity rose, essentially because workers had to accept heavier loads. They had few other options: to have stood their ground would have risked their company closing down and moving shop to the Third World, as indeed many did during the decade.
Of course, economic theory provides little consolation to a laid-off worker. Yes, the American economy was recording huge productivity gains and shifting to the frontiers of innovation. But most of these gains showed up in profits, which in turn drove up share values. The new paradigm gurus said that all Americans would eventually taste the fruits of this progress since the share of the population that owned equity was rising quickly.
Yes, but-- the vast bulk of American share capital is still held by a relatively small number of people. As a result, the 1990s concentrated American wealth in a way not seen in decades. In any event, when the stock market crashed in 2000, most Americans saw the promise of a rosy future evaporate. And still the manufacturing sector continued to bleed jobs.
A populist reaction was thus inevitable. The question is, how far might it go, and how might it affect the US economy?
The answer to the first part is anybody's guess. With an election-year ahead, economists will be carefully studying both the speeches of political candidates and the press releases from the White House.
As to the second part of the question, a new round of protectionism in the US might have mixed results. In the short term, it will probably strengthen the position of labour, leading to higher wages and better working conditions. But the trade-off will be rising prices and declining profits, leading to a drop in share values.
Renewed protectionist sentiment in the US can be set against the broader backdrop of a global reaction against neoliberalism. The anti-globalisation movement - which in fact favours globalization more than it admits - has surged in recent years in reaction to what it sees as the corporate dominance of the global agenda. People as esteemed as the Nobel economist Joseph Stiglitz have decried what they see as Wall Street's pernicious influence on the planet's economic policies.
It may be that this tide of anger will be defused by a couple of symbolic gestures from Washington. My hunch, though, is that it may only just be starting.
John Rapley is a Senior Lecturer in the Dept of Government, UWI, Mona.
