Globalization and Free Trade

It's important to remember that with most, if not all, major changes, there are those who come out ahead and those who come out behind. In some of those cases, people will choose to act rationally, but in a way that, on a societal level, seems irrational, like many of the reactions to other changes that we've explored in this blog. One great example of this is what happened with globalization and free trade.

As someone who loves economics, it always rustles my feathers when I hear about the "merits" of protectionism and the pitfalls of free trade. The whole point of free trade is to free up our resources to do things we are most efficient at doing while letting others do what they are most efficient at doing.  Of course, while free trade helps societies, it can hurt individuals.

The most well-known example of this comes from the United States manufacturing sector. After the Second World War, most of the world's economies were in ruins, leaving the United States as the manufacturing giant, and it quickly grew, employing many Americans and supplying the world. That lasted for a while, but in the 1970s, the Germans and the Japanese started catching up with their rebuilt economies, and then Deng Xiaoping opened up the Chinese economy.

The United States manufacturing sector started falling, and the United States economy started shifting to a postindustrial footing, which was good for America, so long as you weren't a blue-collar manufacturing worker. To those workers, however, power started slipping away. Technology and outsourcing of manufacturing jobs served to erode the economic standing of the blue-collar worker.

Protectionism has a long history, most notably taking form in the Smoot-Hawley Tariff, which is now credited with worsening the Great Depression. Then and now, it exists virulently because some people want to reverse the change that occurred due to globalization. They want to "protect" the United States economy, and in that way, try to get back some of the standing that they had before. Of course, regardless of how high tariffs go, the United States economy is not going to go back to what it was before. However, many people who lost jobs or standing because of the globalization choose to oppose the change because the change puts them at a disadvantage and because reversing the change would be best for them. For those harmed by the economic changes involved with globalization, promoting protectionism is something we haven't much examined in this blog: a rational response to a change.

However, if one looks at this reaction on a macroscopic level, this is far from a rational choice. Protectionism tends to reduce efficiency and increase scarcity, which is the fundamental problem that economic policies try to solve. By implementing protectionist policies, the government would be sacrificing the best interests of the many for the change-reversals of the few. And yet, that is exactly what the pro-protectionism lobby has managed to accomplish, especially with the recent debate over the Trade Promotion Authority. By responding rationally to the change, the pro-protectionism lobby has caused an irrational response to the change by society and government.

The point of all this, however, isn't to simply say that protectionism is bad and that free trade should be the government's policy (although that certainly is a point of this post), but rather, to look at a situation of a change that we haven't explored much: when a rational response to a change by one set of actors results in a terrible reaction for the society as a whole. Nonetheless, the outcome, sadly, is the same as many situations we have examined: an irrational response to a change that hurts people.