Open and Armed Economics: Smart Protection vs Protectionism
- Karen Kuykendall
- Jul 11
- 8 min read
Updated: Jul 25
Tariffs, Tariffs, and More Tariffs
We're here to help make the current swirl around tariffs easier to understand. As a bonus, we throw in a smart alternative. Let's jump right in!
President Trump's view that existing trade agreements are unfavorable to American workers and industries has been a central focus of his since he took office. In January, he started imposing tariffs on a multitude of countries at various rates. Along the way, he has paused or modified some of the original rates, with the White House predicting that 90 deals would be accomplished in 90 days.
Those 90 days were up on Tuesday of this week. Of the 90 predicted deals, only two have been announced so far with a couple of the US's lesser trading partners, Great Britain and Vietnam. Since the remaining countries have not yet made deals, Trump has drawn a new line in the sand. The following fourteen countries are currently on the targeted list for 25-40% tariffs, to be imposed on August 1 if a deal has not been reached by that time:
Trading partner | Previously threatened | Newly announced | Share of U.S. imports | |
Japan | +24% | +25% | 4.5% | |
South Korea | +25% | +25% | 4.0% | |
Thailand | +36% | +36% | 1.9% | |
Malaysia | +24% | +25% | 1.6% | |
Indonesia | +32% | +32% | <1% | |
South Africa | +30% | +30% | <1% | |
Cambodia | +49% | +36% | <1% | |
Bangladesh | +37% | +35% | <1% | |
Kazakhstan | +27% | +25% | <1% | |
Tunisia | +28% | +25% | <1% | |
Serbia | +37% | +35% | <1% | |
Laos | +48% | +40% | <1% | |
Myanmar | +44% | +40% | <1% | |
Bosnia and Herzegovina | +35% | +30% | <1% |
Sources: White House, Observatory of Economic Complexity
Notes: Rates are for most products imported from a country, though not all, including for those products that have received exceptions. Import share figures are based on 2024 trade data.
In addition, more tariffs were announced on Wednesday targeting Brazil, the Philippines, Brunei, Moldova, Algeria, Iraq, Libya and Sri Lanka at rates between 20 - 50%. For the time being it seems, tariffs and their accompanying issues--Wall Street fluctuations, small business anxieties, and potential trade wars--will continue indefinitely, and the final outcome of these tactics will not be seen for awhile.
Protectionism: Tariffs, Quotas, and More
Regardless of how these negotiations are being handled, the foundational question is whether tariffs are ultimately the best way to ensure economic mutuality for the many American workers who have been left behind during the past few decades of trade agreements and globalization. There is no question that formally prosperous areas of the country have seen decline since deals such as NAFTA were signed, but what is the best way to address this issue?
Trump's tariff approach is a form of classic protectionism, which is any government policy aimed at safeguarding domestic industries from foreign competition. Tariffs, or taxes on imported goods, are making headlines at the moment, but there are a number of other ways in which governments can protect the home team, including:
Quotas
Import quotas limit the quantity of certain goods coming into the country and are one of the most common forms of non-tariff barriers.
Subsidies
Governments can provide financial assistance to local industries in the form of subsidies. These can take the shape of direct financial support, tax breaks, or other incentives that lower production costs for domestic producers.
Standards and Regulations
Stringent regulations, including those for health and safety, environmental standards, or quality control measures, can inhibit the flow of cheap, non-regulated goods. While these kinds of standards can be justified on the grounds of protecting consumers and the environment, they may also serve as a means to restrict imports.
Administrative Procedures
Complicated administrative procedures can act as a barrier as well. Lengthy customs processes, extra documentation requirements, and bureaucratic hurdles can delay the importation of goods, increasing costs and discouraging foreign suppliers from entering a market.
Protectionism normally turns up when an economy is developing, or if other countries have imposed their own set of protectionist policies. The tools in the protectionist workbox can also serve as a way to get other countries to the negotiating table, which appears to be at least one underlying reason why Trump has named such big percentages early on.
The Good, the Bad, and the Not So Pretty
As with most things in this world, protectionism has its pros and cons. The Trump White House appears to be focusing on the potential advantages for domestic industries, which include:
Consumers being encouraged to purchase locally produced items, which can increase sales for domestic manufacturers and help them to grow and sustain their operations. Job preservation and the creation of new employment opportunities should, theoretically, result.
Economic independence being created by reducing reliance on foreign goods. Especially with crucial industries like energy and technology, this approach can shield a country from serious consequences if there is a shortage or delay in the global supply chain.
Advancements in technology and production processes being enabled through companies having more resources to invest in research and development, ultimately benefiting consumers through improved products and services.
On the flip side, protectionism can have significant drawbacks that can impact both the economy and consumers, such as:
Higher prices being created when tariffs are imposed on imported goods. The increased costs are often passed down to consumers, resulting in higher prices for everyday products. This can disproportionately affect low-income households, which often struggle to afford basic necessities.
Retaliatory measures being implemented by other countries. If one nation imposes tariffs, affected countries may respond with their own tariffs, leading to a trade war that usually harms all parties involved. Such conflicts can disrupt global supply chains and reduce overall economic growth, as countries become less willing to engage in international trade.
Competition and innovation being stifled. Without the pressure of foreign competition, domestic industries may become complacent, leading to a lack of improvement in quality and efficiency. This can ultimately harm consumers, who then find themselves with fewer choices and lower-quality products over time.
Uncertainty for investments and companies. Business thrives on stability. Threatened and/or imposed tariffs and trade wars create a volatile situation that make both short and long-term planning difficult or impossible. As we have seen these past six months, this situation causes markets to react unfavorably and creates anxiety among corporations and business owners.
Haven't We Seen This Before?
Since economists and political leaders fall on different sides of the protectionism issue, it can be hard to decipher whose view will ultimately lead to a better economic situation for the average American. Often, the clearest approach to a divisive issue is to look at the historical record.
One notable example of US protectionism occurred with the implementation of the McKinley Tariff of 1890. This tariff significantly raised duties on imports and was intended to protect American manufacturers from cheaper foreign goods. While it did provide a temporary boost to certain sectors, it also led to higher prices for consumers and sparked retaliatory measures from trading partners, which complicated international trade relations.
A second example occurred in the wake of the Great Depression. The US adopted protectionist measures with the Smoot-Hawley Tariff Act of 1930, which raised tariffs on hundreds of imported goods to unprecedented levels. While the intention was to protect American jobs and industries, the outcome was largely detrimental, as it provoked a wave of retaliatory tariffs from other countries. The result was a significant decline in international trade, which only accelerated the economic downturn and contributed further to the global economic crisis.
Protectionism has often been a double-edged sword. While it can provide short-term relief to specific industries, it can also lead to trade wars, inefficiencies, a lack of innovation, and higher consumer prices. Over the decades, economists have debated the long-term viability of protectionist policies, with many arguing that free trade ultimately leads to greater economic growth and consumer benefits.
A Smart Alternative - Open and Armed
While people debate and battle over which way will provide the best solution, there is another way altogether. CNN commentator Fareed Zakaria has proposed a smart alternative, which we introduce here. You can access the entire commentary here:
For those of us who believe in openness, it seems obvious that the answer to our problems is not to erect barriers to trade and investment. We live in a deeply interconnected world economy with global supply chains. We can’t reverse these trends. Most “American” products today are actually sourced, made and assembled in many other countries. Slapping tariffs on one or two countries — Mexico and China — won’t bring jobs back to America. It will send them to Peru and Vietnam.
But how to respond to the very real concern that the free movement of capital, goods, services and people has not benefited the average American worker?. ...
The smart politics of the future will prioritize being “open and armed,” willing to compete in a global economy and equipped with a bristling armory of tools and training. It will require a far more ambitious set of government programs. We will need retraining on the scale of the GI Bill, available to any worker at any point in his or her career. ...
(Bernie) Sanders has often said that the United States should look to countries such as Denmark and Sweden and emulate their economic policies. It’s a good idea. But he may not realize that all Scandinavian countries are staunch free-traders — in fact, they score higher in trade freedom on the Heritage Foundation’s Index of Economic Freedom than the United States. All take in immigrants generously. Sweden even has a higher percentage of foreign-born people than America does. But these countries combine this openness with strong, effective policies that give their citizens the skills, capital, infrastructure and breathing room they need to succeed in the world. The countries of Scandinavia are more open than America and much better armed.
What Zakaria is advocating for is "smart protection." Instead of protectionism, a smart protection policy would be open to cross-border trading and investing while providing the skills and other tools necessary to make Americans competitive. Instead of creating an 'us v. them' situation with our trading partners, this third way would provide opportunities for workers in all countries to better their situation.
The Better Capitalism Way
Smart protection reflects the kind of mutually beneficial economic model that we at Better Capitalism advocate. What would implementing such a policy in the US require? Here are some possibilities:
Institute and fund training programs at high schools and community colleges that target in-demand skills; make the college programs as affordable and accessible as possible, especially to communities and populations at risk. Programs such as those provided by the former Comprehensive Employment and Training Act and Job Training Partnership Act are examples.
Develop an advertising campaign that makes people aware of educational opportunities.
Fund technology and internet services for students who need them.
Implement a training-to-job platform that helps graduates find employment in new sectors; include customer service to assist them.
Modify the work requirements for welfare recipients while they go to school for competitive training.
Track employment stats; all participants in programs would register and be required to give feedback on employment status, who they are employed with, etc. These numbers would help discover weaknesses and strengths so programs can be tweaked.
Smart protection is not a solution that can be executed overnight. Indeed, there may need to be some protectionist tools used in judicious ways (think robotic surgery rather than sledge hammers) during the interim to allow for the transition to a more competitive workforce. In the long run however, these type of policies can reap a multitude of benefits. Competition, after all, is a classic tenet of capitalism. What we need to do is enable our country to compete.
Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime. - Traditional Proverb
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