To wrap ourselves in the toxic, defensive mantle of protectionism ... is akin to embracing inflation as a remedy to the credit market correction [and therefore] a horrific mistake.

From Q&A as reported by Reuters

Growth in U.S. exports in coming years will play a critical role in creating better jobs. U.S. exporting firms on average enjoy higher productivity than those that sell only into the U.S. internal market. Because export opportunities are especially great to countries abroad that are growing rapidly, we need to encourage that growth, or at least not interfere with it. Imports into the United States from high-growth countries help to encourage growth abroad. We have a common interest with all the countries of the world in promoting trade liberalization. Increasing liberalization is central to creating better jobs around the world, including here at home. In our approaches to trade issues, we need to shift attention from protecting workers against imports to protecting exports. That will be the key to a more prosperous future.

U.S. exporters are formidable competitors in international markets and can become even more formidable competitors in an international trading environment as free as possible of governmentally imposed barriers.  The increasing involvement in markets globally serves the best interests of U.S. residents, both as consumers and as workers.  In terms of income, the payoffs from prior liberalizations of trade and investment flows have been quite large.  I am certain that actions hindering entry of U.S. innovators and entrepreneurs in global markets will ultimately prove harmful to economic well-being in Arkansas and the United States generally.  Thus, we should all be concerned about the current lack of progress in liberalizing trade flows and the increasing threat of legislation tending toward economic isolation.  Such actions, if they occur, will depress exports in the future from Arkansas and the United States as a whole.  More importantly, governmental actions that depress exports will ultimately harm U.S. income prospects by inhibiting productivity and income growth.     

Of course, current trading arrangements are far from perfect. Some features of the world trading regime, such as excessive restrictions on trade in services and the uneven protection of intellectual property rights, are both unfair and economically counterproductive.    

I will argue that one possible response to the dislocations that may result from trade--a retreat into protectionism and isolationism--would be self-defeating and, in the long run, probably not even feasible. Instead, our continued prosperity depends on our embracing the many opportunities provided by trade, even as we provide a helping hand to individuals and communities that may have suffered adverse consequences.

Although expansion of trade makes the U.S. economy stronger...the broad benefits of trade and the associated economic change may come at a cost to some individuals, firms, and communities.  We need to continue to find ways to minimize the pain of dislocation without standing in the way of economic growth and change.

The most appealing political response—usually some form of selective restriction on trade or investment—is generally the option with the worst economic return.  The typical political impulse is to try to address directly the source of the competitive pressure and to relieve it, but these measures cannot offer lasting relief.  The economic price of protection, in terms of distorted incentives, reduced flexibility and broader costs on the economy as a whole, seem both more substantial and more enduring than any temporary political benefit.   

Further progress in global economic integration should not be taken for granted, however. Geopolitical concerns, including international tensions and the risks of terrorism, already constrain the pace of worldwide economic integration and may do so even more in the future. And, as in the past, the social and political opposition to openness can be strong. Although this opposition has many sources, I have suggested that much of it arises because changes in the patterns of production are likely to threaten the livelihoods of some workers and the profits of some firms, even when these changes lead to greater productivity and output overall. The natural reaction of those so affected is to resist change, for example, by seeking the passage of protectionist measures. The challenge for policymakers is to ensure that the benefits of global economic integration are sufficiently widely shared--for example, by helping displaced workers get the necessary training to take advantage of new opportunities--that a consensus for welfare-enhancing change can be obtained.

For over 70 years, since the Reciprocal Trade Agreements Act of 1934, the United States has led the way toward a more open international trading system and I am hopeful that this historic process will continue. Both economic theory and economic history have provided ample reasons showing that changes in legislation and regulation that tilt toward economic isolation are unwise.

Protectionism is nothing but a tax on the consumer and the businesses that use foreign inputs. Every protectionist impulse, however politically advantageous for a particular political jurisdiction or an individual industry, undercuts globalization’s favorable impact on inflation. Protectionism could lead to interest rates higher than otherwise required to maintain low inflation.

I am deeply concerned about one possible fallout from the large and persistent U.S. current account deficit. This is the possibility of protectionist legislation in the U.S. Such barriers to the trade of goods and services and restrictions on international investment in the U.S. would result in a substantial welfare loss, both for the U.S. and for other countries as well.

Private-market regulation can be effective for achieving the public policy goal of safety and soundness and broader financial stability. Government regulation and oversight should seek to provide an environment in which private regulation can be most effective. Government regulation should not place unnecessary barriers--domestically or internationally--in the path of the future evolution of private-market regulation. Innovation should be fostered, and regulatory protectionism should be rejected.

If the currently disturbing drifit toward protectionism is contained and markets remain sufficiently flexible, changing terms of trade, interest rates, asset prices, and exchange rates will cause US saving to rise, reducing the need for foreign finance and reversing the trend of the apst decade toward increasing reliance on it.  If, however, the perncicious drift toward fiscal instability in the United States and elsewhere is not arrested and is compounded by a protectionist reversal of globalization, the adjustment process could be quite painful for the world economy.

Flexibility is most readily achieved by fostering an environment of maximum competition. A key element in creating this environment is flexible labor markets. Many working people equate labor market flexibility with job insecurity. Despite that perception, flexible labor policies appear to promote job creation. An increased capacity of management to discharge workers without excessive cost, for example, apparently increases companies' willingness to hire without fear of unremediable mistakes. The net effect, to the surprise of most, has been what appears to be a decline in the structural unemployment rate in the United States over the past quarter century.  Protectionism in all its guises, both domestic and international, does not contribute to the welfare of workers. At best, it is a short-term fix for a few workers at a cost of lower standards of living for a nation as a whole. Increased education and training for those displaced by creative destruction is the answer, not a stifling of competition.

Protectionism in all its guises, both domestic and international, does not contribute to the welfare of American workers. At best, it is a short-term fix at a cost of lower standards of living for the nation as a whole. We need increased education and training for those displaced by creative destruction, not a stifling of competition.