Stephen Foley: Free trade is hard work

Click to follow
The Independent Online

US Outlook: Protectionism in the 21st century is an amorphous, insidious thing.

If any government had erected the equivalent of the Smoot-Hawley tariffs in the wake of the financial crisis, it would have been easy to cry foul. When relatively minor trade disputes have erupted, whether over Chinese tyres or Mexican trucks, the full weight of economists' opprobrium has rained down on the US authorities responsible.

But protectionism can creep in under the radar, in numerous little ways. Take, for example, an issue that has strained US relations with India, and which caused a lot of pained expressions when Hillary Clinton, US Secretary of State, went to India this week. The issue of visas for IT workers.

Under the guise of raising funds for adding more security on the Mexican border, Congress approved (and Barack Obama signed) a law more than doubling the fees for H1-B and other temporary worker visas for any company that has more than 50 per cent of its staff on these visas. In other words, the three big Indian outsourcing companies working in the US.

An easy target, but a stupid one. Skilled immigrants pay taxes here, as do the Indian companies, and IT outsourcing has freed US businesses to be more flexible and to spend their cost savings on long-term growth. There is a dearth of IT skills in the US, still. That the H1-B fee hike sailed through under the guise of protecting American workers only serves to highlight how hard it can be to resist illiberal measures.

Protectionism doesn't mean just the erection of tariffs. The Brazilian finance minister's warning of an international currency war was on the money, as countries compete to be the most benignly neglectful of their currencies, in the hope of boosting exports.

We must take care not to overstate the problem. The financial crisis exposed large parts of the world's governing consensus to be faulty – markets are not smoothly self-correcting, we discovered, and deregulation does not come without risks – but globalisation remained intact. The G20 reaffirmed its commitment to free trade, even in the depths of the credit crunch, and no one has convincingly challenged the fact that globalisation enriches all its participants.

There was good news, too, in the latest report of Global Trade Alert, which records protectionist measures and names-and-shames perpetrator governments. In a major shift, in the most recent three months it found almost as many liberalising measures as protectionist ones (71 to 84).

None the less, free trade does not expand of its own accord. It takes hard work by governments to face down factional interests at home, and to navigate competing claims internationally. And it will take constant pressure by global companies to identify and push back against insidious protectionist measures.

In the US, liberalising the skilled migrant visa system and patching relations with India would be a good place to start.