How Protectionism Makes Things Worse

Greece is having hard times. The Greeks hope they can export more stuff in order to earn more money.

The problem is that Greece isn’t the only nation trying to export and run a current account surplus. It’s not even the most successful of the neo-mercantilist states: look to Japan and China as champs in those roles. The US wishes it could export more stuff, though, and resents the way China keeps exporting everything from inside its borders that isn’t nailed down.

That’s the danger sign: resentment in trade issues. When the world economy is going through hard times, some nations can weather the storm better than others by running a current account surplus. It’s just that for every current account surplus, there has to be an equal and opposite deficit somewhere else. When the nations in deficit despair of ever running a surplus, they can turn to protectionist trade policies to at least stop running up the deficits.

When the protectionist barriers go up in one place, other nations follow suit to the point where world trade is choked off and no nation is running a current account surplus and all nations endure the brunt of those hard times.

It happened in the 1930s. There’s a possibility it happens in the 2010s. And when it does happen, it does not help the nations that ran a huge trade deficit – because there goes their current account surplus that was investing in their nation.

4 thoughts on “How Protectionism Makes Things Worse

  1. Nikkiah Guerra

    huh…It’s like extreme russian roulette with politics, let’s all fight for the finish and the strongest ones dies..maybe. This concept of protectionism is so old and yet so unnoticed, much like the belly-button. People are so shocked to find out that the trade system is hurting them.

    http://www.econlib.org/library/Enc/Protectionism.html

  2. Julien Teel

    So what happened after the 1930′s that fixed the problem? Are we just going to enact new policies and hopefully everything will fix itself instantly? Global interactions have increased a lot since the 1930′s, making nearly every nation in the world connected to each other in some way. If there is another Great Depression coming soon like the 30′s, then the global effect is sure to be much greater.

    Though I did read an article about China and how if there was a “bubble” in their economy, not much would be affected. As the Chinese government controls nearly every aspect of their markets, they can also control the damage done. The US wouldn’t be affected supposedly, but I find it hard to believe as we are the largest importer of Chinese goods. Can protectionism really benefit a nation in the long run? I don’t think there has been a successful economy when protectionism is used.

  3. deanwebb Post author

    Since the 30′s, most nations repealed their protectionist laws after they realized they didn’t work.

    Now we’re gonna learn that lesson again, looks like.

  4. Hugo Espiritu

    What I don’t llike about protectionism is that the government protects industries at our expense. How much cheaper could we get things if we imported them from somewhere else?

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