Beware Trade Protectionism

As if there weren't worries enough about the economy, an old monster seems to be rearing its ugly head.

A series of nations around the world are adopting protectionist trade policies to shore up their home industries as they, too, sufffer through the worldwide recession. France is taking steps to block foreign corporate takeovers, Argentina and Brazil are raising tariffs on imported wine, leather goods and peaches, Indonesia is raising import fees on 500 goods and Russia is hiking fees for imported cars, pork and "Bush legs," U.S.-raised chicken made popular by the first President Bush.
This flurry of protectionism comes just a few weeks after world leaders meeting at a Washington economic summit vowed to avoid protectionism.

Hiking tariffs to protect home industries is a natural reaction to hard times but the consequences are almost always dire and counter-productive. They tend to shut down innovative, export-orented companies, leading to more job cuts and more general malaise.

Indeed, the Great Depression was exacerbated, if not partly caused by, the global trade war that led to reactionary trade policies. Amity Shlaes, author of the Depression history "The Forgotten Man," makes a case that the Smoot-Hawley Tariff Act of 1930 was conceived without much thought and made the Great Depression much worse.

One of today's culprits could be the raft of federal bailouts in the U.S. Finanical companies, banks, insurers, auto makers and now commercial real estate firms have all clamored for bailouts. Two of the Big Three U.S. car makers are getting a $17.4 billion lifeline.

Critics and foreign analysts complain that such bailouts are unfair subsidies that put their own industries at a disadvantage. That, in turn, fuels more protectionist fervor resulting in higher tariffs, reciprocity, and so on.

Let's hope cooler heads prevail.