Beating back protectionism.

ELECTION-YEAR POLITICS often bring out the worst of economic policies. Politicians, caught between their policy-making duties and their desire to win re-election, frequently deliver sound-bite solutions to complex problems. Most recently, China has moved into the spotlight as the scapegoat du jour. It is being blamed for everything from cyclical and structural problems in the manufacturing sector to a more prescient political threat, a loss of white-collar jobs.

Middle-market and family-owned manufacturers have been particularly vocal, arguing that the competition created by China is forcing them to shutter operations. I know of one small auto supplier who closed his doors because it "wasn't worth keeping them open," even though the business was still solvent. He felt there was no way he could compete over the long haul with larger, more integrated suppliers that had the means to source at least a portion of their business from China.

But the criticism is unfair. China has experienced larger losses in manufacturing jobs than the U.S. has in recent years. The rise in employment at new plants has been more than offset by the losses associated with the closing of inefficient state-run enterprise operations. Moreover, the criticism completely ignores the role China is playing in supporting growth among some of our fastest growing trading partners.

A recent study by the Federal Reserve Bank of Chicago finds that even the Midwest--the nation's industrial core-has benefited more than it has suffered from growth in China. The demand for new production facilities in China provided some offset for the drought in investment in the U.S. Everything from construction equipment to machine tools were needed to build plants in China.

One reason the forces of protectionism rise up is that the benefits of trade are indirect while the costs are direct. For example, little has been written about how Wal-Mart has increased the purchasing power of lower income households by importing from China. Or about the advantage that global competition has given consumers in the selection and quality of goods they buy. My Cadillac CTS is better than anything GM had to offer in the 1970s, and enabled me to be loyal to my father's GM roots by "buying American."

Another more cynical reason for the latest protectionist push, it seems, is that elections are expensive, and those who support protectionist policies can typically draw the financial support of the inflicted few. The money spent by the National Association of Manufacturers in Washington to block trade initiatives is one example.

The battle between free trade mad protectionism has, of course, raged for decades. In the 1970s, when imports surged, the U.S. auto industry was particularly hard hit. The gas-guzzling behemoths that once symbolized Detroit's dominance suddenly became icons of arrogance. (My first car was a gently used 1974 Pontiac Catalina that got 12 miles per gallon on the highway and died after 50,000 miles.)

Tempers flared again as Ross Perot battled NAFTA in the 1992 presidential debate. His anti-trade rhetoric provided more in the form of comic relief on "Saturday Night Live" than it did in policy shifts. NAFTA passed and Mexico went on to become one of this country's largest trading partners. That, however, didn't stop the forces of protectionism.

In 1999, protesters shocked free traders with violent confrontations at the World Trade Organization meetings in Seattle. The result was devastating. Trade talks stalled, multilateral agreements were shelved and, most recently, trade talks in Cancun collapsed. Worse yet, it was the industrialized nations that caused the breakdown, something we should all be ashamed of. The worldwide push toward freer trade appears to have stalled.

Now, election-year politics are threatening to set us back even further The Bush administration has yet to repeal the 2001 steel tariffs, which have done little to save jobs in the industry and have exacerbated losses for heavy manufacturers-the largest consumers of steel. Why? Because several Republican strongholds could turn on the fate of steel tariffs.

The challenge for CEOs in 2004 will be to beat back the flames of protectionism. In the same way that most corporations don't want Uncle Sam running their businesses, they shouldn't want him running our markets. We need to face our competition and invest in growth rather than protectionism. That doesn't mean we should ignore those displaced by trade. It would be far less costly to offer training vouchers to these people--to invest in our human capital--than to stop the benefits of trade from reaching the masses. We are an economy that is being driven more by ideas than widgets and need to rely more on intellect than brute strength.

We also need to educate the public and our workers of our reliance on trade. One way that Caterpillar helped head off confrontations with the United Auto Workers over NAFTA in the mid-1990s was by hanging the flags of the countries to which they exported. That way, workers were reminded each clay that trade was creating, not destroying, jobs. In its simplest form, trade expands the markets and the world in which we operate. Protectionism closes them.