Ignoring History And Veering Towards Protectionism

The dangerous part of the current world economic crisis is just getting underway. Events that can’t be controlled by a Federal Reserve, Bush or Obama administration are starting to unfold and the eventual impact they may have is not now known.

Throughout history, sudden shifts in economies and the weal of the majority have resulted in destructive changes that impact not only the region in which they occur but often the entire globe. Writing in the Telegraph, Ambrose Evans-Pritchard makes the case that we are heading once more down that dangerous road.

We are advancing to the political stage of this global train wreck. Regimes are being tested. Those relying on perma-boom to mask a lack of democratic or ancestral legitimacy may try to gain time by the usual methods: trade barriers, saber-rattling, and barbed wire.

Dominique Strauss-Kahn, the head of the International Monetary Fund, is worried enough to ditch a half-century of IMF orthodoxy, calling for a fiscal boost worth 2pc of world GDP to “prevent global depression”.

“If we are not able to do that, then social unrest may happen in many countries, including advanced economies. We are facing an unprecedented decline in output. All around the planet, the people have reacted with feelings going from surprise to anger, and from anger to fear,” he said.

We have already seen riots in Greece and a takeover of a factory by displaced workers in, of all places, Chicago. As Mr. Pritchard points out, politicians are falling back on trade barriers to try and hold the wolves at bay. The responses of Russia that he outlines illustrate his case.

Russia has begun to shut down trade as it adjusts to the shock of Urals oil below $40 a barrel. It has imposed import tariffs of 30pc on cars, 15pc on farm kit, and 95pc on poultry (above quota levels). “It is possible during the financial crisis to support domestic producers by raising customs duties,” said Premier Vladimir Putin.

Russia is not alone. India and Vietnam have imposed steel tariffs. Indonesia is resorting to special “licences” to choke off imports.

The Kremlin is alarmed by a 13pc fall in industrial output over the last five months. There have been street protests in Moscow, St Petersburg, Kaliningrad, Vladivostok and Barnaul. Police crushed “Dissent Marchers” holding copies of Russia’s constitution above their heads in Moscow’s Triumfalnaya Square.

“Russia has not seen anything like these nationwide protests before,” said Boris Kagarlitsky from Moscow’s Globalization Institute.

The Duma is widening the treason law to catch most forms of political dissent, and unwelcome forms of journalism. Jury trials for state crimes are to be abolished.

Yevgeny Kiseloyov at the Moscow Times said it feels eerily like December 1 1934 when Stalin unveiled his “Enemies of the People” law, kicking off the Great Terror.

He goes on to point out that China is sending out mixed signals as well and may indeed through currency manipulation be pulling out the stops to protect its export oriented economy. The extent of the problems in that country are largely unknown but it would probably not be unwise to assume that they are worse than reports would indicate.

In another month a Congress that is decidedly anti-trade and a new administration that won partly on the promise to toughen trade barriers and renegotiate trade treaties is going to assume power. If it appears that other countries are attempting to cure their economies at the expense of workers in the U.S. that Congress and administration are going to find themselves hemmed in by past promises and ideology. Their response could easily intensify the problem.

Even a casual reader of history is aware of the monstrous political systems that were spawned by economic misery. Unfortunately, nations have repeatedly chosen to ignore those lessons and paid dearly for having done so. It is to be hoped that we have wiser men at the helm than in the past. It remains to be seen if that is indeed the case.


You can leave a response, or trackback from your own site.

Leave a Reply