A New, Risky Form of Protectionism

In the 1930s, the world fell into a serious, long-lasting depression fueled in large part by counterproductive trade wars.

As economies struggling to stay afloat began to erect trade barriers in the form of tariffs and quotas to “protect” their industries and jobs, one after another — tit for tat — a downward spiral took hold around the world and the overall level of world trade fell in the first three years of the 1930s by almost half.

Few people alive remember those days and the how and why of the consequences that followed.

Yet today most economists and politicians know that “protectionism” is a very dangerous game to play even though there is frequent pressure from labor to “make exceptions.”

The exceptions always are causes that are popular because there are US jobs pains involved. Luckily there are other ways to address those pains in most cases and trade wars have been largely avoided in recent years.

Now comes Russia misbehaving in a variety of serious ways and the US and Europe have reached into a grab bag of trade tools to seek to pinch Russia to behave better. Those tools are various forms of trade sanctions and pressures. Surprise, surprise the Russians are now reaching into their bag of tricks with tit for tat to discourage Europe and the US. The result is that Germany and most of Europe are feeling a counter pinch at a terrible moment for their economies.

And, most recently Russia has passed a law to give them carte blanche to seize any foreign owned assets. Such a step, if implemented, would surely discourage foreign investors for a long time to come.

The point is that “protectionism” either for trade/job reasons or national security is a dangerous game that most likely will end up hurting everyone involved more than the basic problems that led to that type of economic warfare.

Domestic support for jobs is always important. US support for efforts to reign in foreign misconduct in the national security arena is always important.

But, at a minimum we should be fully cognizant all the time that we are struggling with tied and competing problems.

Either we need to find or create new tools to deal with all forms of protectionism OR we must be especially careful how we use today’s tools.

At the moment we are treading on very thin ice. With Europe already sagging economically, the U.S. may not be far behind.

And, we must remember that our most potent global weapon is not the Pentagon, but our economy.


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