Warning signs as states revive Depression-era trade tactics
Food security fears and protectionist subsidies could make economies less efficient for everyone.
Following a week filled with threats and counter-threats, there are ominous signs that a long era of free trade may be coming to an abrupt end.
In a transition that would have seemed astonishing only a few years ago, national strategies based on the advantages of open borders are being replaced by tactics not seen for decades.
Suddenly, countries are looking inward instead of outward. And it’s contagious.
Rather than seeking global or regional efficiency, countries such as Canada are imposing protectionist measures to save their own domestic industries from the damaging effects of foreign protectionism, particularly from the Trump administration in the U.S.
For example, instead of trying to find the cheapest possible food for their people on global markets, countries are conceding that their citizens will have to pay more, leading to worries about food security not seen in decades.
For those schooled in the logic of free trade, including internationally respected trade economist Daniel Trefler, the whole process is nothing but self-destructive.
Everything that we’re talking about with the Trump initiative is things that reduce our competitiveness vis-a-vis the rest of the world,” says Trefler, a professor at the University of Toronto’s Rotman School of Management who advises the Canadian government on investment and trade policy.
“All of this is not only going to make Canada and Mexico worse off, it’s going to make the United States worse off as well.”
Striking back where it hurts
And while he understands the damaging effect of escalating trade barriers, Trefler says if the U.S. were to seriously hurt the Canadian economy with, say, a 25 per cent duty on cars and car parts, Canada would have to strike back in a way that hurts the U.S.
And he says that should include ending U.S. patent protection in this country on things such as pharmaceuticals.
When some of our strongest free trade advocates start taking positions like that it reminds you how far we have come from a few years ago when everyone, including Canada, the U.S. and China, were looking to benefit from the advantages of more open borders.