The Global Economy in Turbulent Times

CHAPTER 72 At Risk: Beggar-Thy-Neighbor¹

Almost everyone is for free trade. Protectionism is a no-no. And, gains made so far need to be consolidated, especially at this time of the Great Recession. Surely, no one wants to fuel a new era of protectionism as in the 1930s, put into place by the infamous US Smoot–Hawley tariffs of 1930.

At the November 2008 and April 2009 G-20 Summits, both rich and emerging economies promised to eschew new trade barriers and work hard to complete the Doha Round by end-2009. Yet within days of the November 2008 Summit, Russia, and India raised tariffs on cars and steel respectively. No progress has since been made on Doha.

This year, more protective tariffs were invoked—from European Union’s preemptive penalties on imports of Chinese steel pipes and US ban on imports of Chinese poultry, to Italy’s anti-dumping duties on Chinese and Vietnamese shoes. China has since retaliated with vigorous complaints to the World Trade Organization (WTO). It also initiated anti-dumping and anti-subsidy investigations into chicken parts and car components imports from the United States. The most recent irritant is US imposition of high tariffs on tire imports from China. This latest move needs to be viewed in the context of a string of ominously protectionist measures, starting with the set of “Buy America” provisions for public works in the Obama stimulative package.

Playing with Fire

The lessons of history are clear. Economic isolationism of the 1930s, epitomized ...