History & Policy

By Marc Palen

'Unless we wish to remove our mills to China . . . and let our men either emigrate or lie idle,' we need protectionism, thundered the American Economist in 1919. A similar observation had been made across the Pacific 60 years earlier when William Robinson of Melbourne stated: 'Free trade furnishes a premium to capitalists to betake themselves to protected countries,' and draws away manufacturers and skilled labourers. Such sentiments, separated by more than half a century, exemplify the seemingly timeless fears surrounding free trade and neoliberalism. They also illustrate how protectionist policies have a longstanding — and often-overlooked — relationship with outsourcing.

Admittedly, both Robinson and the American Economist were writing at a time when economic nationalism enjoyed broad popularity worldwide. With the notable exception of England, throughout the latter half of the nineteenth century most nations began turning to high tariff legislation to protect their infant industries from foreign competition. Canada passed the Galt Tariff in 1858, for example, followed closely by the US's Morrill Tariff of 1861. Within the tariff fortress of Gilded Age America, free trade advocacy became tantamount to conspiracy, and from the late 1870s protective tariff policies were initiated in Switzerland, Austria-Hungary, Sweden, Russia, Germany, the Australian colonies, and Belgium. The economic costs stemming from the First World War would only heighten global demand for economic nationalist legislation, including within Free Trade England itself.

Yet even today, in an era ostensibly dominated by free trade and neoliberal institutions like the World Trade Organisation (WTO), tariff wars proliferate - and outsourcing follows in their wake. Witness the mounting calls for protectionism in response to today's Great Recession, whether we look at the ongoing Sino-American tariff tit-for-tat, the new EU-Chinese solar energy trade war, or whether we listen to outgoing WTO Director General Pascal Lamy, who warns that 'the threat of protectionism may be greater now than at any time since the start of the crisis.'

The debate surrounding protectionism is closely tied to jobs — or the lack thereof. The current high American unemployment rate (around 7.5%), for example, is certainly an ongoing cause for concern and made worse when domestic jobs are relocated overseas. American critics have long blamed outsourcing on free trade agreements (FTAs).

Protectionist volleys against the fast-developing Trans-Pacific Partnership (TPP), a vast Pacific-rim FTA, and the US-EU Transatlantic Trade and Investment Partnership, are cases in point. The Teamsters, an influential US labour union, has been particularly vocal in requesting that the TPP has safeguards against outsourcing by including a 'Buy American' requirement, and the AFL-CIO, a federation of US unions, warns that the transatlantic 'NAFTA with Europe' might be no more than a smokescreen for outsourcing jobs to Eastern European countries, where wages and worker protection are both relatively low.

Admittedly if a transatlantic trade partnership is established, then some US jobs will likely move to Europe, and vice versa. But less noticed is that protectionist policies also result in outsourcing — and can lay claim to an even longer history of doing so.

In the late nineteenth century, for example, American manufacturers like Singer Manufacturing, American Tobacco, International Harvester, and Westinghouse moved production to Canada in order to bypass import duties stemming from Canada's 1879 protective tariff. By 1887, there were 65 American manufacturing plants in Canada, and by 1913, a quarter of total U.S. foreign investment.

Similarly, various English textile firms had 'moved a whole or a portion of their plant' to American shores after 1890 in order to avoid the prohibitive import duties of the US McKinley Tariff. Less than a month after the tariff's passage, for instance, two representatives for Lister and Co. — a sizeable silk manufacturer in Yorkshire, England — were interviewed in Philadelphia while looking at sites for relocating their mills to America. A few days later, the Philadelphia Inquirer noted with delight how the McKinley Tariff was thus able to 'rob England of some of her proudest industrial establishments and gain them for America.'

Fast-forward to today: a massive EU tariff hike on American-made women's denim trousers, enacted in retaliation against continued US protectionism against the EU. This new EU economic nationalist legislation is now forcing US jeans makers to consider moving their production to Europe. Brazil has similarly been enticing tech industries like Apple and Asia's Foxconn to relocate jobs to Brazil with the promise of subsidies and with the threat of high tariffs on foreign imports.

Economic nationalists, ignoring these inconvenient connections between protectionist legislation and outsourcing, instead focus their ire on FTAs. But such critics should realize that protectionist policies are not an inherent panacea for the ills commonly associated with neoliberalism.

Nor is protectionism inherently opposed to the forces of global economic integration, despite what diehard free-market neoliberals might say. Rather, protectionist policies, via high tariff walls, government subsidies, or currency manipulation, are part of modern globalisation — and of job relocation.

In other words, FTAs do not have a monopoly on outsourcing. Rather, both FTAs and protectionist legislation have the ability to simultaneously send jobs out and bring them in, depending on the job and the sector.

It is therefore high time that advocates of protectionism stop outsourcing to FTAs the sole responsibility for job flight, and start taking some of the credit.

This article was originally published in History & Policy