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September 1, 2007

It’s Not Protectionism to Enforce Trade Laws

“Suppose we had no police force. Suppose we had … just silence. Nobody to listen. Nobody to answer. The battle’s finished. The jungle wins. The predatory beasts take over.”
—Police Commissioner Hardy, “The Asphalt Jungle,” 1950

Commissioner Hardy, in this dialog from the John Huston film classic, was talking about the police response to “cries for help.” “People are being cheated, robbed. … And that goes on 24 hours a day every day of the year. And that's not exceptional. That’s usual.”

Something similar happens every day when it comes to the foreign trade of the United States, Canada and Mexico. We're being cheated and robbed every day of the year by China and its policy of building its booming export markets partially on the back of its hugely undervalued currency.

In movies such as “The Asphalt Jungle,” no one questions whether the victims of crime should file a complaint. Of course they should. Other than the law of the jungle and vigilantism, how else can we battle lawless activity?

Yet when MSCI, among many others, asks the federal government to curb mercantilist activities that fall well outside of what's permitted by international trade agreements, the response is to denounce the request as “protectionist.” Protectionism, critics say, is the way to certain economic decline, possibly even a global depression.

Since when did enforcing international agreements become the wrong thing to do? After all, aren't safeguards deliberately built into our national trade laws for a reason? Aren't dispute-resolution systems critically important parts of trade treaties because the possibility of misbehavior—or at the very least, serious misunderstandings— always exist? Are we to assume that mechanisms for selfprotection against unfair or illegal trade tactics—protections such as tariffs, countervailing duties and more—exist only to be admired, but not used?

We at MSCI suggest that the trade mistake we've made for far too long is to fail to protect our legitimate and hard-won rights against unfair or illegal trade practices by foreign governments. “Protection” is not a dirty word, and enforcing agreements is not a regressive or damaging act.

Put another way, if it is “protectionist” to use the remedies provided by our trade agreements—those with the World Trade Organization or the agreements signed with the International Monetary Fund, to name just two—then count us as protectionists. But, instead, doesn’t it make more sense to simply say that as a matter of principle, we choose to obey the law, and treaties that are proxies for the law, and that we oppose those who flout those treaties?

Until we can agree that the protections built into our international agreements are there for a good reason and should be used, it will be difficult to even talk about issues such as Chinese currency manipulation. Perhaps we can, as a preliminary step, agree that we oppose the “predatory beasts’ and seek to protect ourselves from them, quite rightly so. If you want to call us names, call us “legal,’ if you please. “Protection” is not a dirty word, and enforcing agreements is not a regressive or damaging act.