Protectionism won’t protect anything, but rather endanger the global economy

In a world becoming more and more globalised, threatened by a looming depression, states are turning to the one economic principle likely to do more harm than good: protectionism.

Free trade is a principle the world has come to value. It is a concept embedded in globalisation – for only with an integrated global society, can we operate in an economic liberal system.

The economic liberal principle can be boiled down to one principle: simply that, following Adam Smith’s concept of ‘comparative advantage’, each state should specialise. Each country would not try to do everything, but rather do one thing and, in forming an integrated system with other countries, each would compliment each other. Imagine the world as a giant clock, with each state contributing a cog to the system – each cog being necessary and different.

Yet the fear raising hairs on everyone’s necks is that the global economic system is leaning towards economic nationalism, with increasing protectionist measures, and veering away from free trade and economic liberalism. The ‘Economist’ of 5 January this year warned that with the global economic bust, economic nationalism is once again rearing its ugly head. Or to quote a less clichéd phrase from the ‘Economist’, a “spectre” is re-emerging from “the darkest period of modern history”.

The fear is that the global economic crisis will lead to governments taking more control of their economies – using economic nationalism and protectionist measures – and veer away from the principles of free trade and economic liberalism.

This is the problem with the global economy – the fact that the sovereignty of nations inherently juxtaposes the globalisation tendencies of markets. As political analyst Robert Gilpin said in Global political economy: understanding the international economic order, “Whereas powerful market forces in the form of trade, money and foreign investment tend to jump national boundaries, to escape political context, and to integrate societies, the tendency of government is to restrict, to channel, and to make economic activities serve the perceived interests of the state”.

In other, simpler words, markets try to globalise, whereas governments naturally try to restrict globalisation using protectionist measures.

The ‘Economist’ of 5 January 2009 also says that “economic nationalism – the urge to keep jobs and capital at home – is both turning the economic crisis into a political one and threatening the world with depression”.

The fact is that the economic and political spheres are not separate, but rather are intertwined and integral. This is why the desire for more protectionist economic policies – in a globally and economically intertwined world – is such a problem. It will not only impact our economic world, but also our political one. Gilpin says in another book, The Political Economy of International Relations, that “… economic interdependence establishes a power relationship among groups and societies. A market is not politically neutral; its existence creates economic power which one actor can use against another”.

So when the ‘Economist’ warns that the seemingly immanent return of economic nationalism will politicise the ‘neutral’ economy, they are wrong. The economy is already politicised.

Globalisation, and the integration and intertwining of the world economies, is a concept very much in practice, and is institutionalised by organisations such as the World Trade Organisation (WTO), originally GATT (Global Agreements on Trade and Tariffs). However, attempts to make this theory practical is hindered by states’ use of protectionist measures.

Protectionist measures are the knee-jerk reaction of states against economic crises. As was said earlier, governments try to regulate and control, whereas markets tend to jump boundaries. An example of protectionist measures failing miserably is the Smoot-Hawley tariff of 1930. The odd 900 tariffs enforced by the bill slid the tottering global economy into a depression, and that is a threat we face today. States, afraid of the external and uncontrollable economy, try to immediately install protectionist measures to prevent harm to their countries. An example would be Obama’s recent stimulus package, which had a ‘Buy American’ provision. warns that measures such as this “threaten to provoke escalating retaliation and a full-blown trade war”.

This tension between the policies of organisations such as WTO, which encourage globalisation, and of states, which try to protect themselves, makes international trade a constant battle-field. Particularly so with the increasing trend towards economic nationalism, whereas the international institutions try to enforce an economically liberal system of free trade, open markets and minimum tariffs.

Free trade might get sacrificed to the greater god of the sovereign state – security – control. But this attempt at security might lead to the economic downturn they are trying to prevent.


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