Protectionism will undercut any temporary benefits it provides with long-term damage and destruction.Globalization ; International trade

Richard W. Fisher

English

Research Papers in Economics

    President’sPerspective
Protectionism will   
undercut any temporary 
benefits it provides with 
long-term damage   
and destruction.
Before  Nicolas  Sarkozy  became  France’s 
president, he offered a politically incorrect 
dose of economic reality. “Globalization is a 
fact,” he said. “It would be as pointless to 
deny it or oppose it as to challenge the law 
of gravity or to stop the movement of the 
clouds. The question therefore is not wheth-
er globalization is good or bad. It is whether 
we are prepared for it.”
In the two years since Sarkozy’s obser-
vation, the tailwinds that had propelled the 
world’s economies have reversed direction. 
Many  countries  now  face  stiff  headwinds 
that threaten growth on a variety of fronts.
Facing  tougher  times,  many  countries 
are shrinking from globalization, looking in-
ward to protect themselves. I am sure most 
Southwest Economy readers are well aware 
of proposals aimed at restricting foreign buy-
ing, recruiting and investing that are now be-
ing advanced around the world—from Eng-
land to France to these United States. 
Today, the question is not whether we are prepared for the forces of glo-
balization—what Sarkozy described as a fait accompli. It is whether we will 
stand to defend it from the siren calls of protectionism.
We know firsthand the destruction that protectionism can bring. It was 
the protection afforded in the Smoot–Hawley Tariff Act of 1930 that made the 
Great Depression regrettably “great.” The Panic of 1873 was transformed into 
a 23-year-long depression by Chancellor Otto von Bismarck’s abandonment of 
free trade in Germany, aided by our own President Benjamin Harrison’s election 
platform of protectionism.
Protectionism is a dangerous, double-edged sword. It benefits a handful of 
domestic producers at the expense of their peers. It ensures the employment 
or recruitment of some while forcing the layoffs of others. It raises prices on 
imported goods while simultaneously raising the cost to consumers of the do-
mestic goods they purchase. In essence, it will undercut any temporary benefits 
it provides with long-term damage and destruction.
I am happy to see Nathan Sheets, director of the Federal Reserve Board’s 
Division of International Finance, address the danger of protectionism in this 
issue’s “On the Record” feature. I urge you to read the interview, which offers 
plenty of other cogent insights.
 
  Richard W. Fisher
  President and CEO
  Federal Reserve Bank of Dallas

President's perspective

http://dallasfed.org/assets/documents/research/swe/2009/swe0901a.pdf

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