Thomas Donohue and Dean Garfield: Protectionism Is Back Go back »

2012-06-19 | All chapters

Protectionism is back

Wall Street Journal, June 16th, 2012

By THOMAS J. DONOHUE AND DEAN C. GARFIELD

Thanks to innovation and the people across our economy who power it, the stuff of imagination today becomes reality tomorrow. The tablet computer appeared in "2001: A Space Odyssey" some 40 years before it was in our shoulder bags. Buck Rogers's stage-prop laser guns fought intergalactic villains in the 1930s, decades before scientists in the real world harnessed that power to restore people's eyesight.

Despite the stunning power of innovation, there are forces trying to stifle it and replace it with economic schemes that threaten global trade and recovery. A new kind of protectionism is turning innovation policy on its head, unfairly benefiting domestic firms at the expense of foreign players. Left unchecked, the result could be calamitous. Instead of thriving in a globally integrated economy, we will limp toward Balkanized, closed systems.

Sometimes branded as "indigenous innovation," these policies are really designed to boost domestic manufacturing, plus high-technology and R&D capabilities, by discriminating against foreign companies. They have emerged especially in China, with Brazil, India, Russia, Nigeria, Indonesia and Argentina now joining the fray. Among the policies are forced technology transfer; local sourcing requirements; requirements to disclose sensitive designs as a condition of market access; domestic-standards mandates that ignore international standards; and restrictions on the free flow of data.

This doesn't amount only to putting a thumb on the scale, but to collapsing the scale itself. As other countries see China acting to develop economies of scale in manufactured goods, they adopt similar strategies.

How should industries and governments respond to these developments?

First, companies must be prepared to speak out and use the power of their investments to drive better policy. Already, foreign direct investment in some of these nations has slowed as global companies recalibrate investment decisions toward markets where global trading rules are upheld. In a recent European Chamber of Commerce in China survey, 22% of respondents indicated that they may shift investments out of China, citing regulatory barriers to accessing markets. If multinationals don't respond to these mercantilist schemes, countries will see little harm in accelerating and expanding them.

Second, the U.S. government must intensify bilateral dialogues with key countries, focusing on market access and safeguarding the interests of American companies against the burgeoning practices of forced localization and indigenous innovation.

Third, like-minded governments must be prepared to take collective and aggressive action at the World Trade Organization and in other multilateral forums to contest practices that are clear violations of international agreements and norms. We need to come together on a sustained strategy that places a greater emphasis on enforcement. Fist-pounding and hand-wringing won't do it.

Fourth, the United States must get serious about reforming its own problematic tax, immigration and education policies and practices. Timely and effective efforts to combat the emerging protectionist trend will invariably fall short if we don't put our own house in order.

The coming G-20 meetings offer a significant opportunity for the leaders of the world's major economies to state unequivocally that protectionism is a threat to the entire system of transparent, market-based global trade rules. Unchallenged, these practices risk damaging the fragile global economy. The nations at the center of this trend are too big and influential, and their policies too troubling, for us to ignore.

Mr. Donohue is president and CEO of the U.S. Chamber of Commerce. Mr. Garfield is president and CEO of the Information Technology Industry Council.

Source: Wall Street Journal