Saturday, February 28, 2009

Economy: The threat protectionism poses to economic recovery

"Trade liberalization, or the removal of barriers to trade, has been a key engine of growth for much of the post-World War II era. Indeed, one could argue that globalization helped rebuild war-torn economies after the War, lifted the living standards for much of the world's poorest populations, and forced our own industrial base to step up to the plate and innovate," says Adolfo Laurenti, senior economist at Mesirow Financial, in his February issue of Themes on the Global Markets, available here

In his February newsletter, Laurenti takes a closer look at trade, the losses that we have already experienced because of the global recession, and the threat that protectionism poses to economic recovery.

Laurenti pays special attention to what he calls "scapegoating trade," the temptation to adopt a policy shortcut by severing international ties. "Buy American" and "No-Hire" clauses will create new barriers to trade.

* The Buy American Clause: Those who accept funds for infrastructure investment from the recent Federal American Recovery and Reinvestment Act must buy the bulk of their steel from American suppliers. The problem, or course, is that this not only limits competition and increases the costs of these projects for the government, but also increases the costs of production for all U.S. manufacturers.

* The No-Hire Clause: The stimulus package includes a clause to limit hiring of highly skilled immigrants by banks who receive TARP funds. This is akin to asking all foreigners trained in our universities to take the knowledge they have learned here, and move elsewhere to pay taxes and make their fortunes.

"To deny history, and walk away from the opportunities that trade created, would not only represent a setback for the U.S. economy, it could represent a setback for people around the whole globe. A rapid rise in protectionism would not only delay and deepen the recession, but would throw millions of people lifted from poverty all over the world back into the abyss."

"The G-7 could also provide some leadership. The disappointing outcome of recent meetings stemmed from a lack of will, not tools. The times call for leadership, and indulging in the political expediency of protectionism is an unfortunate way to destroy the goodwill and trust that effective leadership demands. We are all in the same boat, rowing toward the same shore. Why not use that collective leverage to our advantage," concludes Laurenti.

The February issue of Themes on the Global Markets, as well as archived issues, can be found at

Mesirow Financial is a diversified financial services firm headquartered in Chicago. It is an independent, employee-owned firm with $32.2 billion in assets under management and more than 1,100 employees in locations across the U.S. and in London.

Source: Mesirow Financial
Published by Mike Hitchen, Mike Hitchen Consulting
Putting principles before profits