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.

Continue…