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Thursday 24 Aug 2017 | 17:35 | SYDNEY
Thursday 24 Aug 2017 | 17:35 | SYDNEY

Protectionism: Have we really learnt our lesson?

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COMMENTS

15 December 2008 17:33

The most obvious historical parallel for the current financial crisis is the Great Depression. Clearly, given the economic and political traumas of the 1930s, this is not a reassuring precedent. Still, one way I have been able to comfort myself when making this comparison is by noting that at least the world has learnt its history lessons – two in particular.

First, we have learnt that fiscal and monetary authorities should not stand by when economies are sliding into recession, lest recession turn into depression. Here, the ongoing race to zero policy rates by the world’s central banks and the plans for substantial fiscal pump-priming now being drawn up across the global economy suggest that policymakers have indeed embraced that lesson, although there remain a few holdouts. 

Second, we have learnt that the last thing you should do in a global downturn is turn to trade protectionism. In this regard, Smoot-Hawley is a classic economic morality tale – a story that we tell young economists to warn them about the evils of protectionism. So, when I have been asked this year whether I worry that the global financial crisis will trigger a worldwide retreat into protectionism, my standard response has been to say that the world learned its lesson in the 1930s, and a re-run of that terrible experience is extremely unlikely.  While I still think this is true, I am starting to become a bit less confident in my assumption...

For example, take the statement from November’s G-20 meeting, where leaders pledged that:

We underscore the critical importance of rejecting protectionism and not turning inward in times of financial uncertainty. In this regard, within the next 12 months, we will refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing World Trade Organization (WTO) inconsistent measures to stimulate exports. Further, we shall strive to reach agreement this year on modalities that leads to a successful conclusion to the WTO’s Doha Development Agenda with an ambitious and balanced outcome. We instruct our Trade Ministers to achieve this objective and stand ready to assist directly, as necessary.

(The subsequent APEC meeting made similar noises.)

Yet within days of the G-20 summit, Russia had announced it would push ahead with plans to increase import duties. Since then, at least four other G-20 participants – India, Indonesia, Brazil and Argentina – have said they too plan to increase trade barriers in one way or another. Then last Friday came the (all-too predictable) news that the G-20’s other trade-related pledge – to make progress with the Doha round – had also fallen by the wayside.  

Add to these failures a growing clamour for public bailouts for key domestic industries and mix in rising fears about beggar-thy-neighbour style competitive devaluations, and my assumption that the world has learnt the lessons of the 1930s no longer looks quite as robust. As a result, I now find myself hoping that that famous Hegel quotation does not turn out to be right when it comes to trade policy.

Photo by Flickr user Joriel 'Joz' Jimenez, used under a Creative Commons license.

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