Closing the Trade Door — Turning Inward and Losing Out

I'm amazed at what poor students of history we all are when it comes to the impact of curtailing trade on both local (i.e., our own) and global economies. If I restate what happened in the 1930s to prolong the depression, I will sound like a broken record (albeit one made in China for 40% less and the same quality as here). Suffice it to say that it does not appear as though any of us have learned from our free trade phobic mistakes of the past, at least if you read the current headlines this week. According to a story in The New York Times, "After repeated pledges by world leaders to avoid erecting trade barriers, protectionism is on the march, provoking nasty trade disputes and undermining efforts to plot a coordinated response to the deepest global economic downturn since World War II... From a looming battle with China over tariffs on carbon-intensive goods to a spat over Mexican trucks using American roads, barriers are going up around the world. As the recession's grip tightens, these pressures are likely to intensify, several experts said."

What are some examples of protectionism on the march? "Russia has raised tariffs on used cars. China has tightened import standards on food, banning Irish pork, among other things. India has banned Chinese toys. Argentina has tightened licensing requirements on auto parts, textiles and leather goods. And a dozen countries, from the United States to Australia, are subsidizing embattled automakers or car dealers." For those who have formally studied history -- or have at least learned from it -- we all know that the world never does manage to repeat itself in the exact same form. But at the same time, just as I can say with near certainty that we will soon face a potentially serious inflationary cycle thanks to the all night shifts the Fed's been running with the printing presses of late, I can also say that we'll prolong the downturn by turning inward if history is any indication. It's scary, but predictable. The really sad part of it is that otherwise smart people appear to have fallen hook, line and domestic sinker for isolationist thinking (see the comment section of the post).

Jason Busch

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