The Economist has a pretty dramatic cover piece this week. The title is "The Return of Economic Nationalism," and the cover shows a hand clawing its way out of the ground in a graveyard full of names such as Smoot/Hawley. In the piece, they argue:
Economic nationalism—the urge to keep jobs and capital at home—is both turning the economic crisis into a political one and threatening the world with depression. If it is not buried again forthwith, the consequences will be dire.
I have to say, their reaction seems a bit overblown to me. Yes, there have been some recent efforts to impose new trade barriers: raising tariffs, imposing more anti-dumping measures, and inserting discriminatory provisions in procurement legislation (the "Buy America" issue), among other things. But I think we need to keep things in perspective. Prior to these recent events, we did not have anything close to complete free trade. As Fred Bergsten recently put it:
"The WTO rules are very porous," said C. Fred Bergsten, director of the Peterson Institute for International Economics, a Washington think tank. "If you simply say live up to your rules, you still have massive scope for what I call legal protectionism."
Along the same lines, I was only half-joking when I said last week that "'protectionist power balance between all the big countries' is a pretty good description of the GATT/WTO in general." The point is, it's not as though we have gone from free trade to autarky in recent months. Rather, we went from a situation with a good deal of protectionism to a situation with a little bit more protectionism. I haven't been involved with these issues for as long as some of this blog's readers, but I've been following since about the early 1990s. From what I can recall, there have always been strong criticisms of free trade and many calls for protectionism. It may be a little worse today, but not by much.
The important thing, though, and the difference from the 1930s, the period everyone keeps warning us about, is that the basic rules-based international trading system is still intact. Countries are free to impose legal protectionism, as they always were. They cannot, however, violate international trade rules, just as they could not before the recent financial crisis.
I agree that it's important to keep an eye on the growth of protectionist measures. They are a real concern, and having the WTO (and others) monitor this is a good idea But I think that we (that is, free traders) should be wary of using overblown rhetoric, or else we risk losing some credibility.
That's my view, anyway. I'd by happy to hear it if someone disagrees, though.
