As you may have noticed in the news this week, there’s a lot of anxiety building over the possibility of a global slide into trade protectionism.  With stimulus packages sprouting up in more and more countries, there’s an increasing fear that state leaders will include clauses to protect domestic industries.  This can take a number of forms, whether it be raising import tariffs, subsidizing national companies, providing incentives for companies that “buy local” at the expense of imports… the list goes on. 

Essentially, anything that gives an advantage to national companies at the expense of non-national companies is trade-distorting, and thus a protectionist measure.  But during a global recession, it’s very difficult to avoid these actions.  For a simple example, take the auto bailout.  In North America, we assume that the auto industry is “too big to fail”.  But in giving a bailout to GM, Ford and Chrysler, we’re distorting trade – at the expense of German, British and Japanese auto companies.  Naturally, this issue has already been raised.

Now, a note on free trade.  Generally, most economists agree that free trade is good, and protectionism is bad.  Since the Second World War, regional trade agreements and the World Trade Organization have been, overall, reasonably successful in promoting global trade and lowering barriers to trade.  But let’s remember – we still don’t have absolute free trade.  Canada still has tariffs – you can read our official list if you’re that interested.  So although we have relatively “free-er” or “more open” trade than previous periods in history, it’s still not completely free or open, in any absolute sense.

Now as I mentioned, most economists will agree that we need to move towards free trade, not away from it.  Protectionism, and sometimes even bailouts, are often regarded as the “slippery slope” towards deeper recession (or even depression).

What makes this even worse, however, is the retaliatory nature of protectionism.  Just look at the “Buy American” clause in the US stimulus package, which prompted Canadian politicians to start talking about possible retaliatory measures.  Michael Ignatieff warned the US that Canada is a “force to be reckoned with”, while European leaders made open threats that this could spark a trade war.

But is this kind of rhetoric helpful?  Do our politicians really have to talk tough and make threats? 

Words like “war”, “threat” and “retaliate” all have very negative connotations.  The word ‘war’, in particular, is one generally associated with violence and malice.  Is this the kind of discourse we should have between North America and Western Europe, regions that are supposed to be close allies?  Using the term “war” angles this as state-versus-state conflict.  Is this how we want to frame this issue, at a time when global economic cooperation is more important than ever?

Politicians are savvy- they know the power of words (journalists too).  When they need to gather public support for a cause, they’ll often frame it as an us-versus-them issue – note the “War on Drugs” and the “War on Terror” (on a sidenote, I’ve always thought that a barrier to progress on global warming was the term itself – “global warming” doesn’t sound very threatening – who doesn’t like warmth?  Why hasn’t anyone thought of a more threatening term for this?)

When the newspapers front headlines of “Trade War”, it’s likely to create public support for retaliation.  When public support goes up, it’s more likely that politicians will act on it.

So let’s go back to the auto bailout.  Was it protectionist? Yes.  Is protectionism detrimental to global trade?  Of course.  But did challenging times necessitate a bailout?  You could easily make this argument (as many economists have).  In a recession, states will do things like this, and yes, they will be trade-distorting.  But to frame bailouts and stimulus packages as acts of war is only going to make matters worse.

So let’s stop making threats of retaliation, and stop calling this “war” – this isn’t war.  Let’s not blindly assume that free trade is our ideological goal, and that any barriers to it are evil.  Instead, I’d rather see our politicians act with pragmatism, and come to new agreements on how the world can come through this crisis together.

People are already upset over the worsening economic condition.  So let’s choose our words more carefully, before the discourse of “war” causes national populations to villanize one another.

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