America Must Resist Protectionism Because Globalization Benefits Us All

America's prosperity depends on turning outward to the rest of the world.
01/12/2017 09:26 am ET
President-elect Donald Trump speaks to workers at Carrier air conditioning and heating in Indianapolis. Dec, 1, 2016.
Tasos Katopodis via Getty Images
President-elect Donald Trump speaks to workers at Carrier air conditioning and heating in Indianapolis. Dec, 1, 2016.

U.S. financial markets have staged a stunning rally since Donald Trump’s surprise election victory. However, some observers remain wary of Trump’s promised trade protectionism and its long-term impact. Many fear a return to the disastrous, protectionist, nationalist U.S. policies of the 1930s. 

As we transition into a digital age, the free flow of goods, services, technology, capital, education and innovation remains vital to our prosperity. A quick look at the numbers highlights a powerful, alternative narrative to the emotional and popular anti-globalization messages currently being proclaimed in developed economies. These facts need to inform the next generation of financial, political and business leaders on the world stage. Here are four major ways that global commerce benefits us all.

 

1. There is a direct correlation between growth and trade.

GDP growth rises with the volume of global exports. The production and trading of physical assets, such as agriculture and commodities, combined with faster transaction times and processes fueled by globalization, resulted in extraordinary global economic expansion during the 1990s.

Even as that flow of physical assets has slowed, countries in Southeast Asia are still growing rapidly. Young populations in the region are benefitting from higher incomes due to exports. And those increased wages boost demand for goods from “new economy” sectors, such as health care, services and technology, much of which originates in the U.S. and Europe. Chinese demand for American blockbuster movies is just one example of “old economy” jobs (such as in manufacturing) in developing economies fueling “new economy” jobs (such as in digital media) in advanced economies. 

This chart shows the growth of world merchandise exports and GDP from 1980 to 2014.
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This chart shows the growth of world merchandise exports and GDP from 1980 to 2014.

 

2. Global commerce provides diverse sources of funding and enables international public-private partnerships.

Beyond the free flow of physical assets, a look at foreign direct investment and cross-border mergers and acquisitions reveals a very different storyline from the protectionist message. Last year, 1.89 million jobs were created globally by greenfield foreign direct investment (that is, investing in a foreign country in a project or operations from the ground up).

In Arkansas, a Chinese manufacturer is creating jobs by building factories in the retail and consumer space. In Ohio, a Chinese billionaire is reviving a closed auto plant to create 3,000 jobs. In Egypt, the European Bank for Reconstruction and Development recently announced it will work with a local bank to fund small and medium enterprises to tackle energy efficiency. As these examples show, goods produced in one country meet the demand of workers in another, and capital to fund business growth often comes from diverse sources from around the globe.

These creative cross-border structures are essential to solving some of the world’s complex problems. As Trump’s advisors put forward their infrastructure plan, we should remember that no man and no infrastructure plan is an island in a globalized world. Successful large-scale projects often rely on varied funding sources and global strategic partnerships around the world. The Panama Canal, funded and created by the Panama Canal Authority and a consortium of international banks, is a case in point. Moreover, diversified capital sources can beneficially spread risk across investors. 

Increased wages in Southeast Asia boost demand for goods from new economy sectors in the West.

 

3. Nowhere are cross-border bridges more important than in education.

In the U.S. and Great Britain, higher tuitions paid by foreign students have helped counterbalance decreased public funding. And America has much to learn from other countries, including France, Germany and Mexico, about vocational training. Perhaps knowledge from well-regarded foreign programs can be adapted and piloted in Pennsylvania, where old-economy steelworkers need to be transitioned into new-economy jobs, such as IT and data analytics. Looking farther ahead, U.S. vocational expertise could then be exported to China, as the Chinese government seeks to upgrade its manufacturing capacity through digitization.

 

4. Supporting innovation and incubating ideas across borders has a multiplier effect.

As our economies shift from computers to digitization and the internet of things and onward to whatever comes next, free exchange will be central to growth ― globally, regionally, nationally, provincially, municipally and at the community level. A Chinese company is currently making significant inroads in developing 5G mobile technology, and its advancements will ultimately benefit Western counterparts. This kind of cross-pollination benefits us all.

The private sector has a role to play in solving global problems ― whether it is in the form of a publicly owned corporation, a family office, an institutional investor or a start-up company with a vision and a purpose. These structures may take on the character of specific advocacy ― such as for the environment. The deepening preference of millennials for social-impact investing and sustainable development goals is a case in point. But the private sector can’t go it alone ― governments and public-private partnerships form part of the mix. Mutual collaboration to solve common problems ― incentivized by a rate of return ― is not a bad thing.

In Ohio, a Chinese billionaire is reviving a closed auto plant to create 3,000 jobs.

Global commerce does not have to mean rampant capitalism or unfettered financial markets. Instead, our debate should focus on the singular role that the private sector can play in advancing the needs of humanity within and across communities and in enabling individuals to directly contribute to generating income, value and growth.

Because they are based in economic reality, the trade winds will to continue prevail ― at least in the long term ― against the current protectionist gasps of hot air. That protectionism diminishes the livelihood of the very people it is supposed to protect. The appeal of turning inward during tough times is understandable. But our prosperity depends on our doing just the opposite: turning outward to the rest of the world, with the trade winds in our sails. 

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