Are You Sure You Want Those Protectionist Policies?

By Tim Wilson

I can’t say for sure that those shouting for more protectionist policies are hypocrites. Maybe some are just economically clueless. But this much is true: No one really wants to put the globalist genie back in the bottle.

Indeed, the undesirability of protectionism is actually a small issue compared to the impossibility of it. It’s not just a bad idea to enact protectionist policies. It’s not possible for such policies to succeed. The genie will not go back in the bottle.

To understand why, just think back to the glory days of 1996. Reddit did not exist, nor did Google, Instagram, YouTube, or Twitter. 44 million people worldwide had some kind of cell phone, and AOL had 20 million subscribers who went online for a whopping 30 minutes a month. In contrast, over 350 million smart phones were sold in the first quarter of 2016, and smart phone owners spend an average of 4.7 hours per day online.

You and billions like you are smart phone owners, and none of you want to give up the news/Twitter feeds/emails/bank accounts that are, quite literally, in the palms of your hands. Therefore, you tacitly approve of global trade.

You see, your phone — whether it’s a cheap flip phone or the latest iPhone — is the result of a truly multinational effort. Not a planned effort, mind you, but one that arose naturally to address all kinds of human needs. Thousands (maybe millions) of people put it together: miners and refiners of raw materials, electrical and chemical engineers, designers and builders of thousands of mini-devices, wifi technicians, researchers, marketers, and on and on. And they all had to communicate ideas and goods across borders thousands (maybe millions) of times to make your smart phone a reality.

So what happens if, in the name of protecting and creating jobs, a crazy American government slaps a new tariff on imports? Wait, don’t answer that — because the Chinese, Canadian, British, Mexican, and Taiwanese governments (among others) will retaliate with their own tariffs. Now many (most?) cross-border exchanges would become more expensive, and the effects would hit every area of our lives. Everything from the common (like smart phones, refrigerators, and lettuce) to the obscure (like permanent magnets and fiberglass resins) would become more expensive. It all happened in 1930, and the results were predictably disastrous.

So for the sake of today’s and tomorrow’s economy, we don’t want to put the global genie back in the bottle. And anyone who says otherwise and still uses a smartphone is either a hypocrite, clueless, or both.

I’ve focused on smart phones — as opposed to refrigerators or fiberglass resins — in order to highlight the revolution in communication over the past 20 years. In 1996, news was primarily filtered through 10 major television networks and journalistic organizations, and most information was transferred via fax or snail mail. Today, information flows freely across every conceivable governmental, corporate, ideological, and personal border at mind-blowing speeds.

For the first time in the history of the human race, billions have access to the same information. A farmer in Brazil or Bangladesh can decide where to sell his/her crop at the best price. A kid in China or Chile can work his/her butt off to learn how to make useful robots.

So, you can put up a trade barrier, but you can’t put up information barriers (and if you try, some hacker will break them down sooner rather than later). This means that even as you protect your country’s jobs, someone in another country is figuring out how to provide similar (or better) products or services at a lower price. Which means that it’s just a matter of time before that product or service shows up in your country as a legitimate or black market item.

Has the globalization of trade hurt some people? Yes, and I think that it’s good that the political class is struggling with this issue. But the answer to the problems of globalization is not de-globalization or protectionism. It’s probably something akin to what Bill Clinton proposed way back in 1992: educate workers to be adaptable and trainable over a lifetime. It’s the only way to compete in a global economy, and a global economy is the only one we’re ever going to have.

Tim Wilson is a partner with Artiman Ventures, an early-stage venture fund investing in white space companies creating or disrupting multibillion dollar markets. His current investments include Crossbar Semiconductor, Kaybus, Mossey Creek Technology and Prysm. Follow @timartiman and @Artiman on Twitter.

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