March 7 (Bloomberg) -- Free trade is under attack all over the world because of slowing growth, unemployment worries, accelerating inflation, misaligned currencies, paranoia about China's economic juggernaut and anxiety about sovereign funds.

That's too bad because protectionism is a strategy for losers. It appeals to countries that, unwilling or unable to compete in global markets, erect barriers to the free movement of goods and capital in the mistaken belief that it will work.

When asked whether protectionist sentiment was increasing in the 27-country European Union, European Commission President Jose Manuel Barroso told the Financial Times last week, ``Yes, and I fear this rise not only in Europe but all over.''

French Prime Minister Francois Fillon has warned international banks against trying to acquire Societe Generale SA. And European companies are very concerned about China's failure to protect intellectual-property rights.

``It might be hard to resist the protectionist calls,'' Barroso said.

Democratic presidential candidates Hillary Clinton and Barack Obama, pandering to voters who blame the North American Free Trade Agreement for lost jobs, said the U.S. should consider ditching the accord with Canada and Mexico if it can't be renegotiated on more favorable terms.

Now, U.S. lawmakers are angry over the Air Force's decision to award a contract worth as much as $35 billion to European Aeronautic, Defence & Space Co. and its partner Northrop Grumman Corp., instead of giving it to Boeing Co.

Japanese Poison Pills

Several hundred Japanese companies have adopted poison-pill takeover defenses in an attempt to discourage hostile foreign bids. Others are increasing cross-ownership stakes with business partners and banks, reversing a decade or more during which cross-shareholdings were being unwound.

Protectionism risks retaliation. Canada, the largest foreign petroleum supplier to the U.S., may end the privileged access to Canadian oil that the Nafta treaty bestows on the U.S., if a Democratic president seeks to renegotiate the agreement. Other countries might respond by refusing to fund the large U.S. trade deficit or by raising tariffs on U.S. exports.

Free trade's demise might unleash a cocktail of stagflation, rising interest rates, a plunging dollar, squeezed corporate- profit margins and tumbling stock markets. World trade fell 70 percent two years after the enactment of the U.S. Smoot-Hawley Tariff Act of 1930.

Technological Change

Nafta, which took effect in 1994, has become a scapegoat for an exodus of U.S. jobs. Technological change is the real culprit. Answering machines did away with many secretaries and switchboard operators; bank tellers fell victim to automated teller machines; automobiles signaled the end of blacksmiths and buggy makers; laptops put typewriter manufacturing out of business.

``Enormous gains in technology have raised the bar on global competitiveness, punishing firms with outmoded facilities, regardless of their location,'' Joseph Carson, New York-based chief economist at AllianceBernstein LP, wrote in a 2003 study.

From 1995 to 2002, about 22 million manufacturing jobs disappeared globally, an 11 percent decline, he said. The U.S. lost 2 million of those jobs, while Chinese manufacturing employment ``fell a whopping 15 percent from 98 million in 1995 to 83 million in 2002,'' Carson said. Yet during the same period, global industrial production rose more than 30 percent.

Ricardo's Theory

You can't today have an insular economy that is self- sustaining, unless you consider North Korea a going concern. Nor did it make sense two centuries ago, when British stockbroker, parliamentarian and self-made millionaire David Ricardo developed the theory of comparative advantage. It holds that countries boost economic prosperity by exporting the goods they are relatively more efficient at producing, and by importing those that other nations are relatively more efficient at making.

``Political economy has found few more pregnant principles,'' Paul Samuelson, Nobel laureate and professor emeritus at the Massachusetts Institute of Technology, wrote in his ``Economics'' textbook. ``A nation that neglects comparative advantage may pay a heavy price in terms of living standards and potential growth.''

The Obama-Clinton trade debate may just be political theater, destined to fade after the Democrats choose a candidate. Still, there's a risk that it won't die down. Protectionism is a catchy issue -- blaming someone else for your problems always had its allure -- with simplistic appeal to Americans, many of whom don't understand the nuances of international economics.

Special Interests

It is also one that clearly separates both Clinton and Obama from the presumptive Republican candidate, Senator John McCain, who is a free-trader. Moreover, the Democratic presidential candidate may be pushed into pursuing an anti-trade stance from the political left by independent candidate Ralph Nader.

That would be a shame because leaders shouldn't appeal to the lowest common denominator, nor make policy based on focus groups or special interests.

``Most arguments for tariff protection are simply rationalizations for special benefits to particular pressure groups and do not stand up under analysis,'' Samuelson says.

The next U.S. executive needs to rebuild alliances and ameliorate the antagonism with other countries built up during George W. Bush's administration. It shouldn't begin by repudiating trade accords. Simply, the Democrats can't plan on canceling Nafta, while blaming Bush for disregarding the Kyoto accord on climate change.

What's more, rich countries such as the U.S., Japan and those in Western Europe are morally obliged to redistribute some wealth to poorer nations by giving them access to markets. Prosperity breeds a safer, more peaceful world in general.

The West spent trillions over seven decades to defeat communism and persuade the Asian subcontinent to embrace capitalism -- victories that allowed 3.3 billion people to enter the global market economy. The U.S. and Europe can't now wish that those emerging nations would just go away.

(Michael R. Sesit is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: Michael R. Sesit in Paris at at msesit@bloomberg.net

Last Updated: March 6, 2008 19:03 EST