Free Trade, Protectionism and Marketing

Some things seem to never go away — like the arguments about free trade, protectionism and what is best for the economy and for most Americans.  With the upcoming election, the personalities and rhetoric, it appears the U.S. is moving backwards.

Throughout the 20^th Century and now into the 21^st Century, there is this basic argument: Is more world trade desirable if it means American workers will lose their jobs. The key question: Why would these Americans lose their jobs? The answer: Because their work can be done more efficiently outside of the United States. The basic rationale of global trade is exporting or importing the products and commodities that can be most efficiently produced in alternate countries.

Keeping less-productive Americans in their factory jobs means the U.S. government has to impose tariffs or quotas on the more efficiently produced foreign products. This will force the prices of those off shore goods to go up in order to match what it costs to produce them less efficiently in America. So the consumer has to pay, out of his/her own pocket, what it cost to keep a less productive American worker employed.

Protectionism is completely at odds with the modern rationale of marketing. The goal of marketers is to find unique competencies and communicate them to the consuming public so that this consuming public can increase its collective quality of life. When we see Toyotas, Volkswagens, Hondas and BMWs on our nation’s highways, should we assume these cars were purchased by unpatriotic Americans who were more interested in their own pleasure than empathetic to some Michigan factory worker? The “buy American” concept can only go so far. Yet very few of us are willing to forego efficiency and lower prices to support the “buy American” concept.

What makes this argument even more confusing is the question: what is an American car? The obvious answer: A car that is made in America. Major car factories owned by Honda are operating in the U.S. along with Toyota, Nissan, and many other foreign brands. In fact, foreign cars produced in America are often sold in foreign markets. On the other hand, American cars i.e. General Motors, Ford and Chrysler are manufactured off shore and often sold in the U.S.

Then there is the issue of component parts. Is a Ford Escort that is made with parts sourced from the global market, an American car?  Or, is a Toyota Corolla a foreign car if it was manufactured in the U.S. with most of its parts from U.S. sources?

Clearly, Mr. Trump and Mr. Sanders are promoting fallacious, emotionally charged thinking with little substance. The North Atlantic Free Trade Agreement (NAFTA) was delivered during the Bill Clinton presidency. It is Barack Obama, a Democrat who was elected twice through the support of labor unions, who is pushing to pass the Trans-Pacific Partnership Free Trade Agreement (TPP).

The “populists” like Sanders and Trump under the guise of protecting American jobs, are really advocating higher prices, a lower standard of living and a shrinkage in the American economy. This is particularly interesting when one considers the ambitious spending programs both candidates advocate. Where is the money going to come from? A weak economy means lower tax revenues.

More trade means more jobs everywhere. When the water level rises all the boats rise.  The challenge for government and the private sector is to develop new products and technologies that offer competitive advantage.

There is another important advantage of world trade. Doing business creates better international relations. For many years, there was no contact between the U.S. and The People’s Republic of China (Red China). The historic Nixon visit helped the Chinese become the world’s second leading economy. Moreover, China and the U.S. stand together on many international issues. No smart business person wants to go to war against his best customer.