Categories World Economy One to watch Post author By Kevin O’Rourke Post date January 31, 2009 10 Comments on One to watch This is very worrying. Related ← Trade collapses → Gresham’s Law 10 replies on “One to watch” This is indeed a worrying development. It is causing consternation here is Canada. Let’s hope the Obama administration is willing to use some of its political capital to take on the democratic congress. It also underlines the importance of internationally coordintated fiscal stimulus (for the countries that can afford to do so). John and Mark: is it correct that this would violate NAFTA rules, or not? Brad says it would, so were there government procurement rules in there? Hmm…. I wonder if a move to intra-bloc protectionisim would be a likely halfway house here. Kevin – whats the historical “speed” of emergent protectionisim? how quickly do things get bad? Kevin, I put that question to a trade expert friend of mine. His response: “Yes, I’m sure it runs afoul of the WTO’s Government Procurement deal, and probably other things. The Europeans are apparently already investigating a WTO filing. The WSJ bemoaned the fact that this will ensure higher prices and foreign retaliation. I don’t know what Obama is going to do. I haven’t heard his admin comment one way or the other. But this is what you get with a Dem congress. Can’t wait till the midterm elections.” I think Brian is right to fear protectionist blocs. Something from yesterday’s Globe and Mail: http://www.theglobeandmail.com/servlet/story/RTGAM.20090131.wustrade0131/BNStory/politics/home See also Paul Krugman’s very interesting post on this: http://krugman.blogs.nytimes.com/2009/02/01/protectionism-and-stimulus-wonkish/ He argues that big stimulus plus protectionism might be better than inadequate stimulus due to free riding non-stimulators (and under-stimulating free-ride fearers). If you follow. Just read Krugman is all. Some dangerous thoughts from Krugman here: http://krugman.blogs.nytimes.com/2009/02/01/protectionism-and-stimulus-wonkish/#more-1333 Dani Rodrik is entitled to feel vindicated. He has been warning that this was a possibility for some time. James: check Rodrik out. He has always been sceptical about extremist pro-globalization arguments, but is now sufficiently concerned that he is putting the maintenance of freeish trade near the top of his wish list for 2009. The April conference is becoming really important. Remember: they had one of these last time around, and it failed. The newly elected FDR was no help, either. Brian: good question. Smoot Hawley is July 1930. The British abandon free trade the following year. We abandon freeish trade the year after that. So: 1930-32 is where the action is. More on this story here: http://www.ft.com/cms/s/0/db03eb9e-f094-11dd-972c-0000779fd2ac.html @Kevin, Canada has found out the hard way, through the softwood dispute, that NAFTA is a one way street when it comes to disputes, because victory in one panel leads to appeal to another and another… Freeish trade is great but, as Krugman says, international policy coordination needs to be taken seriously too – if you fear protectionism you should fear the causes of protectionism. Comments are closed.