Frederick Erixon and Razeen Sally of the Wall Street Journal wrote an opinion piece over the weekend concerned with the rise of protectionism in the wake of the past year’s financial turmoil. It is easy to tire of hearing about the parallels between the current economic situation and the Great Depression. Erixon and Sally, however, argue that the financial meltdown more closely follows the model of the recession of the 1970s—warning of the “new protectionism” that dominated trade during the Carter-Era.
As Congress and the White House continue to expand government intervention in the domestic economy, this new protectionism in foreign enterprise seems only a natural consequence. Cash for clunkers and other manufacturing subsidies following the auto bailout eerily echo the “buy local” campaigns of the late Seventies. While that decade was a time of “voluntary export restraints” and “orderly market arrangements” we now see a sharp drop-off in international lending as well as calls for stricter regulation of international lending.
Almost as soon as the scope of the economic crisis became apparent, economists saw signs of another Smoot-Hawley on the horizon. While the reality may not give rise to new outright tariffs, just because this potential wave of protectionism doesn’t come in the form of a simple Congressional Act doesn’t make it any less dangerous. It is all the more important, now, to continue liberalizing trade, and be wary of populist economics.