Thursday, March 19, 2009

The Lure of Protecting Domestic Industry and Workers

... and the catastrophe that awaits those that do (WSJ). A reminder from Jeffrey E. Garten, a professor at Yale. There's no lacking of temptation:

As happened in the 1930s, economic nationalism is also sure to poison geopolitics. Governments under economic pressure have far fewer resources to take care of their citizens and to deal with rising anger and social tensions. Whether or not they are democracies, their tenure can be threatened by popular resentment. The temptation for governments to whip up enthusiasm for something that distracts citizens from their economic woes -- a war or a jihad against unpopular minorities, for example -- is great. That's not all. As an economically enfeebled South Korea withdraws foreign aid from North Korea, could we see an even more irrational activity from Pyongyang? As the Pakistani economy goes into the tank, will the government be more likely to compromise with terrorists to alleviate at least one source of pressure? As Ukraine strains under the weight of an IMF bailout, is a civil war with Cold War overtones between Europe and Russia be in the cards?
via Club for Growth, Charles Krauthammer points out the lack of leadership in the US and the astounding short sightedness in the cancellation of a minor trucking program with Mexico to appease union interests (National Review):

If you thought AIG was an example of Democratic incompetence over a relative triviality, look at this. There are over 6.5 million trucks in the United States. This program allows 98 Mexican trucks to roam among them. And over that, they are willing to risk a trade war with Mexico.

If you wanted to do protectionism, do it competently. Go the full Smoot-Hawley. But over 98 to enrage Mexico, to threaten to destroy NAFTA, and to show the world that the American Congress is willing to impose protectionism over trivialities at a time when the economy is hanging by a thread, where every other country is looking to see if American is going to turn protectionist.

And, as we saw in the stimulus package, it included a provision to buy American, which enraged the Europeans. There is a huge amount at stake, meaning the world economy and the risk of a world depression if you have trade wars. And to do it over 98 truck (sic) is absolutely absurd.

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