Free Trade in an Age of Terror

The war on terror appears to be causing a surge in protectionism. Some anti-terrorist warriors are so worked up about immigrants that they want to build a wall along the entire United States-Mexican border. They also are fighting the proposed takeover of US ports by a Dubai company, because they fear terrorists could gain vital intelligence from the investments. In Europe, the movement to stop inflows of migrants from Muslim countries is extremely popular.

These developments do not constitute more protectionism in the usual meaning of the term, where private interests subvert the public good, as when farmers charge higher prices because competitive imports are restricted. National security concerns are not foolish. While a nation has a clear interest in the benefits of free and open trade, it also has a vital interest in its citizens’ safety.

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National security versus globalization is not an either-or issue though they sometimes come into conflict with each other, so balancing them is the key to successful policy.

US President George W. Bush, for example, is seeking balance on the immigration issue by proposing to restrict, but not eliminate, guest worker entry. His proposal – which lies somewhere between the extremes of building a wall on the US-Mexican frontier and open borders on the other – is the right approach when guest workers could be disguised terrorists. Naturally, the greater the terrorist threat on the border, the more restrictive the policy should be.

Compensating for the expected diminution of guest workers on the global stage is a likely increase in outsourcing, which provides an alternative and potentially more attractive way to import labor services when globalization is tainted by terrorism.

Like guest workers, outsourcing imports labor services, but the foreign workers stay in their own backyards. Either the desired service is performed from abroad – telemarketing, for example – or the work is sent abroad for processing and later imported to the home country (in Europe, more and more industrial work is being outsourced from West to East). Outsourcing keeps terrorists – and other foreigners who would get expensive welfare subsidies – at bay without sacrificing the benefits of globalization.

Bush may be right on guest workers, but his controversial proposal to have a Dubai-based company run six US ports is a big mistake. In a safer world, the deal would go unnoticed – and rightfully so. But American public opinion, worried about the threat of terrorism, seems set against the takeover.

Free traders are dismayed. They take popular opposition to the deal as a sign that America’s commitment to an open economy may be waning. But, after the terrorist attacks of September 2001, is it “frenzy” for Americans to demand greater public safety and national security from their elected officials?

In this age of terrorism, doctrines like free trade must be re-defined to include the public’s interest in “goods” like safety as well as more conventional goods like televisions and autos. Otherwise, such doctrines lose their relevance.

The transfer of potentially strategic information about ports into foreign and perhaps unfriendly hands clearly carries with it national security risks. It is futile for the Bush administration to deny it. Even the US Coast Guard could not rule out that the company’s assets could be used for terrorist operations.

Banning the takeover, on the other hand, would mean less efficient management of the ports, since the Dubai-based company is considered a better manager than the current one. This would mean a loss for the US, because, sooner or later, some of the efficiency gains achieved by the Dubai firm would be passed on to US ports in the form of higher lease payments.

This case requires balancing national security risks with the efficiency gains from better management. Experts argue that the probability of a terrorist attack because of the Dubai takeover is small. Should the damage inflicted by a terrorist attack also be small, there would be no problem.

But the damage inflicted by an attack might be tremendous, because ports are thought to be one of the few ways terrorists might smuggle nuclear weapons into the US. Because of this, Americans can’t afford to take even the minutest of chances with their ports – the consequences of error being too staggering to contemplate. The American public understands this, even if their president does not.

Free traders should not be dismayed. Rather than being protectionism in the usual sense, saying no to the Dubai takeover would reflect the desire to maximize the public interest more broadly and properly defined. This is the opposite to protectionism.