Economic recessions and their aftermath are perfect grounds from protectionist measures. When a period of economic decline happens, trade and industrial activity reduces, gross domestic product (GDP) falls, unemployment rises and governments turn their eyes to foreign trade. Increasing job opportunities and boosting a country's economy by blocking imports becomes appealing. But in fact, former experiences show that such protectionist policies in trade work quite in reverse.
The Great Depression is a very good example of this. Even before the stock market crashed in 1929, U.S. Congress had already started to increase substantial tariffs on imports. More tariffs in 1930 inevitably provoked some retaliation worldwide and global protectionist measures started to follow one after another. Major countries imposed high tariffs, strict exchange restrictions and brought new quotas for imports. After huge devaluations shortly thereafter, the world was in big economic and social chaos.U.S. import tariffs were raised to 47 percent in 1933 to protect the domestic economy, but in the meantime, U.S. exports fell more than 60 percent. The protectionist trend in trade was not the reason for the Great Depression, but it caused a big delay in terms of recovery. Even though global output was back to its pre-crisis levels by 1938, it took over a decade to reverse the missteps of protectionist measures and to heal the damage.
Furthermore, when trade wars are exacerbated, it cannot be guaranteed that the bad blood will stay within the confines of trade. Since economic changes quickly move to the social and political life, trade wars triggers new hostilities, which brings new political crises and conflicts, and unfortunately, the risk of actual war. The rise of fascism that led to World War II was related to the global economic depression. As we recall, the Nazis became popular among the Germans since Hitler had used the rhetoric that the Jews had stolen the jobs.
The recent global financial crisis and the international recession in its aftermath made some of us remember the aftermath of the Great Depression. When developed economies were hit by the collapse of financial markets in 2007-08, economists started to warn political leaders to resist tempting protectionist measures citing the 1930s. The danger of beggar-thy-neighbor policies was close once again. The fears did not materialize initially. Leaders of the developed and emerging countries promised to avoid bringing new restrictions and barriers, which would further jeopardize the global economy. Tariff increases were replaced by economic stimulus packages. The U.S. Recovery and Reinvestment Act, or then U.S. President Barack Obama's $800 billion stimulus bill launched a recovery in U.S. economics and prevented the world from going into a trade war.
Regrettably, the 2008 financial crisis was too big to walk away from quickly, and it affected almost every country. We saw massive protests in Europe. Even today, the GDPs of some European countries still have not recovered to pre-crisis levels. The Brazilian demonstrations of 2013 and the Ukrainian revolution of 2014 are examples of popular uprisings in emerging markets. Economic decline was the main factor of the Arab Spring uprisings as well. Of course, the unrest in the Arab world stemmed from political and socioeconomic discontent that predated the financial crisis, but rising joblessness, increasing food prices and liquidity crunches exacerbated their grievances.People can easily forget what happened eight years ago since the Middle East is a war zone now, but the dominoes started to fall after a Tunisian street seller's self-immolation. Mohamed Bouazizi, who was selling fruit and vegetables on the streets because he could not find a job, set himself on fire after being harassed by police. The Arab protests spread to countries suffering from the impact of the global economic downturn.
In the past few years, the weak economic recovery provided a stage for populist parties in the West to blame foreign trade and foreign workers for the prolonged discomfort. Far-right campaigns, including that of the presidential campaign of Donald Trump, have been based on the two fundamental ideas of uplifting the poor working class and blocking immigration. Refugees who had to flee war-torn countries such as Libya and Syria were easy targets to blame while rising terrorism made it easier to further spread feelings of insecurity.
Ten years after the start of the global economic meltdown, the world is in a very dangerous atmosphere in which the possibility of a third world war is seriously discussed. And now, Trump is opening Pandora's box.
Trump talked tough on trade when he took office last year, but did not do much to support his aggressive rhetoric until the announcement of the new U.S. National Security Strategy. When Trump put the economy at the heart of the security strategy with an emphasis on confronting unfair trade practices, we heard the footsteps of protectionism in trade that carries the risk of new trade wars. Recently, Trump imposed massive tariffs on aluminum and steel imports saying, "Trade wars are good." The U.S. president is aware that the rivalries in the world are dangerously heightened, but he happily adds fuel to the fire. If other countries retaliate with the same poison, and some probably will, already messy global politics will become messier very shortly. Clearly, Trump has not taken lessons from the past.
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