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dent Trump has been unilateral, with
only China retaliating. So unlike in the
1930s, no major industrial nation other
than China has retaliated. Optimism is
not warranted, however. Other countries have resorted to trade-distorting
policies such as subsidies and local
content requirements well before President Trump came onto the scene. In
fact, the G20 nations—including China
and the U.S.—first met in 2008 to forswear protectionism, but have been
steadily increasing their policy interventions to tilt the commercial playing
field in favor of domestic interests.
2
The U.S. trade policy has been quite
explicit about protecting U.S. jobs. In
the 1980s, U.S. administrations fo-
cused on protecting jobs in the auto-
mobile and electronics sectors facing
competition from Japan. In the 2010s,
creating manufacturing jobs, of con-
cern under the Obama administration,
took a protectionist turn under Trump,
starting with tariffs on steel and alu-
minum to protect steel and aluminum
jobs. On the other side of the Atlantic,
sectors including clothing, footwear,
and electronics.
4 In electronics, for
example, components that are assem-
bled into mobile phones zap across
national borders more frequently than
completely assembled mobile phones
themselves. In the golden age of global
supply chains, we have taken dispersed
production locations for granted.
Free trade improves productive efficiency and increases consumer choice.
The economic theory of comparative
advantage also provides an indisputable
logic behind why two nations that trade
are both better off than if they do not
trade. Nevertheless, free trade remains
controversial because gains from trade
are not evenly distributed within coun-
tries. Liberalizing international trade
necessarily produces losers among
workers in sectors facing import com-
petition as they face job losses and de-
clining wages. The resulting greater in-
equality begets a sense of injustice, and
has led to a populist backlash in many
countries. We need robust institutions
to deal with redistributive consequenc-
es of free trade, and not all nation-states
are up to carrying out that task.
3
The Current Phase of Protectionism
Many commentators draw parallels
between the post-2008 situation that
we are currently experiencing and the
1930s. Just like in 1929, the global economy suffered a great financial crisis in
2008. Just like in the 1930s, the U.S. has
imposed tariffs on imports in 2018. But
so far, U.S. protectionism under Presi-
Why has the world
moved toward
protectionism,
and what is its impact
on businesses
and consumers?
