The collapse of global trade, murky protectionism, and the crisis:

VOX
Research-based policy analysis and commentary from leading economists
countries B to Z! This is more so today when the world is even more inter-connected
through the global supply chain. In an excellent paper published by the Peterson
Institute for International Economics (Buy American: Bad for Jobs, Worse for Reputation,
February 2009), authors Gary Hufbauer and Jeffrey Schott estimate the possible gain
of 1000 jobs in the US steel industry arising from the Buy American Act could result
in the loss of 65,000 jobs due to fall in exports arising from retaliation. That is the
true "logic" of protectionism.
Trade, innovation, national economic reforms, competitive corporate strategies
and capital flows, especially in the form of FDI (foreign direct investment) cause
change in the employment landscape of nations and the global market economy in
ways that are dynamic and constructive. Just one among countless examples: policy
reforms in Vietnam and the opening of the country to FDI have resulted in Vietnam
going from nowhere on the global economic map to becoming, among other things,
one of the world's biggest producers of shoes. The production of shoes and the
employment it has generated have contributed to Vietnam's remarkable record in
poverty reduction, which in turn has transformed millions of Vietnamese into consumers
of global goods and services. Thus, while Vietnam's emergence as global shoe
producer may have resulted in the loss of jobs in certain countries, e.g. Italy, overall
it has created more jobs and also contributed to more wealth which will allow
Vietnamese to consume Italian and other counties' products. When Gordon Brown
stated that global challenges require global solutions, he was correct. This is also true
of global firms. If all firms try to preserve jobs everywhere, including in their own
domestic markets, ultimately the global labour market will be reduced, rather than
increased.
Unquestionably, companies and economies can enhance their competitiveness by
their ability to create jobs on a sustained basis. The movement of people, goods,
money, and information has shaped an interdependent world and we cannot afford
to simply protect jobs and leave new job creation to chance. Jobs can be created by
focusing on the right industries, providing incentives for research to drive the development
and growth of those industries and implementing plans that support the
upgrading of skills. Industry, universities, vocational institutes and government must
work together in this critical endeavour to ensure we seize all opportunities and avoid
the trap of protectionism.
In looking at the global economic landscape today, while recognising the severity
of the crisis, it is also more than legitimate to celebrate the fact that the last twenty
years of the global market economy have witnessed phenomenal growth among
many developing economies and unprecedented reductions in poverty. Without a
single exception, all of the high growth developing economies have been ones that
have embraced the global market economy. This is now at risk. The perils of protectionism
must be actively combated.
The crisis of confidence
We must also address the crisis of confidence which is coupled with a strong sense of
insecurity. This is true across the world, whether among the millions of Chinese
migrant workers who fear for their livelihoods or among American workers who fear
losing their jobs and hence their health insurance. In rejecting protectionism, we
must at the same time recognise that if confidence is to be restored, while it is wrong
to try to protect jobs through protectionism, people do need to be protected. This
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