  I decided to Blog the email exchange I had with Steve this morning, since it got me rolling a bit. I invite other comments as always, but since about two people actually read this crap, I'm not holding my breath. (Oh, and I appreciate the two that I have....) Steve started with a link to a Drudge story about a developing EU trade war with the US.
I responded: The EU trade war? Just a matter of time. But really, we screwed this one up with those stupid steel tariffs. There should be no tariffs of any kind as a form of protectionism. There are uses for them in cases of punitive action against another country though.... Bush screwed up with Steel, and I argued against it from day one.
If an industry can't compete, let it fail. Steve then replied: the market... Do you think 'the market' is a factor in creating (for lack of a better term) wars? Then I replied: There is an old adage, and I don't know who said it. "If goods are not permitted to cross borders, troops will. " The economic pressures that lead to war are exacerbated by the artificial constraints imposed by protectionism. Of course, some wars have little to do with economics, but I think at some core, economics contributes. It is hard to maintain a cadre of terrorists when the source population has an economic interest in peace. The Palestinians do not have this interest, and for all of the oil wealth in the Arabian lands, their people see little benefit. Radicalism is bred in poverty. This is why I favor the approach we are taking with China. We have strong ideological differences with China, but the flow of goods and money has entangled ourselves with them. Both sides see a war as far too costly of an undertaking, so it is best to be avoided. Ideological conversion will flow from business and the market.
The answer is never protectionism of failing industries. Our mistake is viewing capitalism is a system that offers 30-40 year stability in employment. Those that are being hurt are those that have not learned to constantly reinvent themselves and to acquire new marketable skills. The union steel worker is no longer required when it can be done more efficiently in other parts of the world. We need to let those industries go and reallocate the freed labor to other tasks. This means those laborers must be prepared to find new work. There are no guarantees. It really is the best system, since it takes care of it's own obsolete industry through creative destruction. Any artificial means of prolonging the death throes of a business harms the entire system. If there is money to be made in Taiwan steel, then capital should flow to Taiwan, seeking the maximum return on investment. Meanwhile, the 'hole' left here is filled by some other task or service that we have an advantage in providing. This is why all the tech support jobs are going to India. Those that provide these jobs here are no longer valued for their skill.
Therefore, those individuals must learn new skills and be ready to change. We are the best in the world at innovation in the tech sector, but that does not extend to the ask of supporting existing, mature technologies. Focus on what we are good at, and move on. Protectionism only hurts the protected. For decades, Japan kept out our products through high tariffs, and now they are paying the price in their economy.
They have been in a slump for ten years now, and are finally allowing industries to fail. It isn't popular, but the medicine must be administered. These protected jobs, 'the walking dead', are finally being seen for what they are. The capital and labor tied up in these inefficient jobs are hindering the creation of new jobs, since the labor market is artificially tight, and new industries must pay too much to attract labor and investment. Make sense? And that was the end of it. Feel free to flame away if you favor protectionism. 
