Protectionism - 2008-2009 Style

As the Great Depression set in, countries around the world raced to put in trade protection measures in order to safeguard their own economies. With this downturn, we see countries racing to do something with the same consequences, but without the same political undertones. What is it?

Countries are racing to debase their currencies.  This makes imports more expensive and increases the value of exports.  It improves the trade deficit.  It is the first thing that you want to do when times are rough.  For the US, it is difficult because a rough global environment and a fall in commodities leads to a flight to the dollar which should drive the dollar higher.  But, by bringing interest rates to 0, the dollar is at least being held at a low rate vis-a-vis the Euro and the yen.  The GPB, however, is something different as the UK's central bank has moved aggressively to lower their rates and to debase their currency.

Lowering rates and watching your currency fall is an easy move to explain politically.   It is easy to say: "We had no choice.  Our economy was faltering and we needed to lower rates."   Exporting companies in the affected country can't do anything other than urge their central banks to take similar measures.

In this era of global trade and globally interrelated economies, it would no longer be acceptable for a country like the US or the UK to throw up trade barriers - adding taxes and tariffs to Japanese, Chinese or German products.  That would be met by a host of countermeasures by the affected country.     

Jason Rodgers
Jason Rodgers: Jason Rodgers was an experienced research analyst for a major bank prior to retiring to run his own investment consultancy in beautiful Lihue, Hawaii. Jason contributed articles to BestCashCow from 2008 to 2014.

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