When the economy is dragging and jobs are scarce, protectionism may be a natural response, but is it a smart defense? MoneyWatch's Sumi Das and Jill Schlesinger discuss what history has taught us about the economic policy and how it can hinder, instead of fostering growth.
>> During a recession, people hunker down and often seek to blame for their troubles. Countries are no different. Under pressure to give the appearance of their taking action, governments often put up barriers against countries, foreign workers, and against immigration in general. Here to talk about protectionism is Money Watch.com's editor at large Jill Schlesinger. Jill, thank you for joining us.
>>
Jill Schlesinger: Thanks for having me.
>> So has the U. S. been in this situation before?
>>
Jill Schlesinger: Unfortunately yes. If we look back to the depression, there were echoes of this protectionist fervor that has now really caught the grip of this country. Back then there was a tariff that was enacted called the Smoot Holly Tariff, which is funny to say but not so funny in practice. We erected trade barriers and taxes on foreign goods coming into the country, at just about the worst time. It is thought by historians that Smoot Holly was a contributing factor to turning a recession into a depression.
>> So then I think I know the answer to my next question, but please answer it anyway. So is this the right reaction then? It sounds like it isn't. This is not really helping the U. S.
>>
Jill Schlesinger: This is contraindicative actually, as we say in the business, meaning that at the time where we are trying to promote growth, where we want new jobs, new opportunities created, we are creating a way that is stymieing people from doing, from growing. We want trade barriers just absolutely obliterated during these periods of time, and the real serious issue is that once we start in this process, there is a real tit for tat. We erect a trade barrier, a trading wall, then what happens? Another nation on the other side of that will retaliate. That retaliation hurts us so much. We're the biggest economy in the world, and we need our goods and services to flow freely across the globe. So at a time where we want to be pro growth, protectionism really hurts the economy.
>> On the surface it may seem like a good idea to have a policy, to only hire American workers, but we gain a great deal from foreign workers. So here is a finding from a recent study that hits close to home for those of us who live in San Francisco. More than half of Silicon Valley start ups had at least 1 immigrant founder, and in 2006 almost a quarter of international patent applications were filed by foreign nationals. So it seems like there's a tremendous benefit to the U. S. here.
>>
Jill Schlesinger: And you know here... let's really make that thread go right to the end user. If I'm looking for a job, don't I want a new patent issued, don't I want a new idea, a new concept, a new service, a new product created? Because then a new company is started. And in the other part of that statistic, that half of new start ups were created by someone who is an immigrant. Those are the companies that could be hiring you next. You might have lost your job at a big auto maker at a Wall Street firm, and yet an immigrant can create a beautiful new idea and start a company, and you can be the beneficiary; you could be hired by that company. Do we really want to lose that opportunity?
>> One immigrant could possibly create many, many, many jobs.
>>
Jill Schlesinger: Thousands and thousands of jobs, absolutely.
>> Okay, so what's the worst part about all of this? Couldn't this affect America's relationships abroad?
>>
Jill Schlesinger: It really is a terrible thing to think about, that as every country is trying to protect their own borders. They're trying to really, as you said, hunker down. It creates a downward spiral. The retaliatory effect, I think the emotional affect, that you really think why am I beating up on this other country when that country, or that worker from that country, could be coming to this country that was based on immigrants, that was really created, we all came from another place. Where the beauty of the capitalist system is propelled forward, do we really want to stop that? So the worst part of protectionism and trade barriers is that is really sort of cuts to the heart of what the United States capitalist economy has been built on for centuries.
>> Alright Jill, thank you so much for enlightening us about protectionism.
>>
Jill Schlesinger: Thanks for having me.
>> For more about protectionism and the way it affects the American economy, head to Money Watch.com.
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