Protectionism and the free-market Economist

The Economist magazine is furious with Barack Obama for his announcement of a 35% import tax on tyres from China. The writer looks at the role of world trade in the extraordinary burst of growth that globalisation has triggered, which has “lifted hundreds of millions out of poverty over the past few decades and brought lower prices to consumers everywhere.” The effect is being threatened now though, as world trade is predicted to fall by 10% in 2009 and many countries attempt to help their domestic industries with subsidies or new tariffs on imports: the Economist quotes a report from the Geneva-based World Trade Alliance claiming that, on average, once every three days a G20 member has broken the no-protectionism pledge they made at the summit in April. Specifically, they look at the potential problems to be caused by the new import tax on Chinese tyres: either consumers will have to pay more for tyres made more expensively in the domestic economy, which will cause the motor trade to suffer, or buyers will simply switch to an alternative source of low cost imports, from India or Malaysia, in which case the US jobs will be lost anyway, and in either case there is the risk of provoking retailatory measures from China.

Does one small measure of protectionism matter? The selective steel tariffs introduced by George Bush on imports from China in 2002 had very little effect on trading relations between the two nations in the long-run. The Economist thinks that this is different, and that America has to take a leading role in resisting the temptation to protect, but also largely because they are reliant on the Chinese as major buyers of the government bonds that are financing America’s massive fiscal deficit.