While the causes of the Great Depression of the 1930s—or, at least, the relative importance of the causes—remain in dispute, few economists disagree that “beggar thy neighbor” trade policies deepened the catastrophe. No college course in American history these days lacks a reference to the infamous Smoot-Hawley Act of 1930, which quadrupled U.S. tariff rates even as the economy collapsed and triggered a wave of retaliatory measures elsewhere in the world. Global trade fell by one-third between 1929 and 1932. Some years ago, Jakob Madsen estimated that more than half of that trade decline was tied to protectionist barriers.
Nothing so dramatic happened in the wake of the 2008 financial meltdown. So, we must have learned our lesson with respect to trade, right? Yes and no.
Yes, the protectionist response this time around was weak tea compared to 1930. But there is no question that barriers to trade (mostly non-tariff barriers) were raised significantly in response to lobbying by protectionist lobbies in virtually all the world’s trade powers. Equally troubling, there has been little success in reversing the trend even though the global economy has plainly begun to recover. Indeed, judging by the record of the second half of 2009, the inertia driving protectionism remains quite formidable.
How do we know all this? We follow the Global Trade Alert (GTA) reports issued by the Center for Economic and Policy Research, the London-based think tank, and edited by Simon Evenett of the University of St. Gallen in Switzerland. The third GTA report, issued in December, offers a country-by-country compilation of protectionist initiatives along with assessments of the consequences for trade policy in some key economies (Russia, China, Japan, India). Read it and weep.