Who Pays for Protectionism?

November 25, 2016

How soon we forget. ‘Experts’ have us so convinced that current economic sluggishness is ‘different this time’ that we are hyping the same failed remedies we used during similar conditions in the past. Sadly, protectionism is selling well these days, fed by widespread economic frustration. Blaming others – in this case, other countries – is a basic knee-jerk reaction. But it only makes sense if there are truly winners and losers. Data suggest all have suffered in the Great Recession’s wake, and that protectionism will only make things worse. If we go down that road, who pays?

It all seems reminiscent of the trade wars that erupted in the aftermath of the Great Depression. At that time, a blend of tariff hikes and currency devaluations sparked a sequence of retaliatory moves that helped to erase about one-quarter of world trade in just three years. Eight years on, world trade was still more than 10 per cent below the previous peak, despite the fact that overall production was 10 per cent above its previous peak. This strongly suggests a greater isolationism, at a heavy cost: By 1936, US GDP had only just clawed back to 1929 levels, and by 1938, it was still only 2 per cent above the previous peak.

It didn’t take long for us to forget the success of greater global integration. Protectionist rhetoric came to the fore in 2009, as some of globalization’s greatest beneficiaries embarked on ‘us-first’ policies. The ‘Buy American’ program was perhaps the most memorable, but France, China and others were quick to propose measures aimed at containing their heavy stimulus programs within their own borders. There was a rapid jump in global trade restrictions in 2009, and every year since, more have been added. The OECD estimates that there have been some 1,200 additional discriminatory trade-related measures imposed since 2008, which by all appearances is having a similar effect on global trade as in the 1930’s.

This has been excerpted from a 24  November 2016 commentary by Peter G. Hall of EDC and is available in its entirety at:
http://www.edc.ca/EN/Knowledge-Centre/Subscriptions/Weekly-Commentary/Pages/who-pays-for-protectionism.aspx


Topic(s): 
Canadian Economy & Politics
Information Source: 
Canadian News Channel
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