Protectionism. Repeating Past Mistakes? - April 2006

Can you remember the year? The United States Congress was concerned about growing imports of foreign goods and capital and their impact on the American way of life. It had only been about a decade since the world was at war and distrust of foreign governments and firms was still high.

If you said 1930, you are correct. That was the year that Congress passed the Smoot-Hawleys Tariff Act which many believe was the final trigger causing our country’s Great Depression. Its purpose was to protect American goods and American industries by raising the costs for entry of foreign goods used in our economy.

When other countries retaliated by doing the same to our goods, our highly leveraged economy collapsed and decades of economic misery followed. In other countries, weak governments failed and nationalist dictators took their helm which many scholars believe led thereafter to the next world war.

Sound familiar? The recent debacle with a United Arab Emirates entity trying to buy a British firm which managed some of our port terminals brought our Congress to the brink of similar protectionist legislation. Already many of our allies in the Middle East are thinking of kicking out American firms doing business in their locales.

Many in Congress still want to pass laws protecting our “critical infrastructure” – whatever that means. Don’t get me wrong. I had a problem with a foreign government with strong ties to Islamic fundamentalists owning a firm which helps bring containers into our ports. And I fault the Bush administration for not putting out a directive to its staff to involve the key decision makers when such a highly sensitive investment was put on the table for their review.

That said, we cannot let our political leaders take us back to the 1930s. The reality is that the flow of foreign investments in the U.S. is a sign of economic strength. Our thriving economy – thanks to the investment friendly Bush Administration – has brought $ 4 billion of foreign investment into our economy according to a recent analysis by the Wall Street Journal. During the same time, the U.S. has created four times as many new jobs as all of Europe and Japan combined.

Most important, those foreign investors and firms are responsible for more than 5 million U.S. jobs according to the Wall Street Journal. Best of all those jobs pay an annual wage which is twice the average rate for U.S. wages. Where would our economy be today without Toyota and its cost effective and dependable cars and its massive investment in auto manufacturing plants in our country? It was only about 60 years ago that Japan was our mortal enemy. Where would our country be without the engineering and production expertise of many German-based firms doing business here?

Certainly I would support any legislation that strengthened the current foreign investment review process to ensure that those foreign firms or governments do not have questionable ties to bad people with bad intents toward our country. And I would agree that we should ensure that our most vulnerable and potentially life threatening assets such as nuclear power plants, domestic bomb making facilities, and water distribution and treatment firms get even closer scrutiny. Frankly, some of them may already be under foreign ownership. Are we already less safe?

But the American people need to step back and realize how the world economy works. Without foreign investment here in the U.S. and without the opportunities for our firms and people to invest abroad, our American economy would not be the envy of the world.

And foreign investments in this country give those firms and governments a continuing stake in our success – including working with us to ensure the safety and security of their investments. While it is foreseeable that a nefarious firm or government may try to weaken our defenses by investing in our free society, we must make sure that our fears of such do not hinder the importance of our involvement in the world economy.