Good article today by Bloomberg columnist Michael Sesit, who lays out the protectionist actions many countries are taking in the midst of the worldwide economic slump and warns that accelerated trade protectionism would plunge the world into a depression.
Unless governments get serious about arresting the trend soon, the chatter about 2009 morphing into a replay of the Great Depression will become a self-fulfilling prophesy. The U.S. Smoot-Hawley Tariff Act of 1930 increased duties on more than 20,000 goods, inviting retaliation by other countries. Within two years of the law’s enactment, global trade declined 70 percent.
One of the signs of increased protectionism in the U.S. comes on the tail of the stimulus bill’s “Buy American” provisions, which mandate that public projects funded by the package must use goods, including iron and steel, manufactured in the U.S. Not satisfied with that, now the steel industry wants to protect the rest of its market by increasing tariffs on imported steel. According to today’s Wall Street Journal, expect to see steelmakers file anti-dumping complaints this spring. They’ll have to wait a bit, ‘though, because their profits during the first three-quarters of 2008 were healthy, and one can assume that wouldn’t make a strong case.