The New Protectionism
Now, however, following the shock of the three-fold increase in
crude oil prices in 1973 and inflationary tendencies already apparent
before then, most of the western developed countries are finding it difficult
to overcome recession and unemployment without a resurgence of inflation.
So, once again, as in the 1930s, the case for protectionism is
being vehemently argued by strong socio-political forces. These forces
argue their case on the basis of two highly suspect propositions that
imports deprive the domestic labour force of jobs and that to cut imports,
or to make them prohibitively expensive, will save jobs.
Yet one country's imports are another country's exports and
proliferating protectionism will prove to be mutually destructive of jobs
and damaging to living standards all round. The fact is that unemployment
cannot be reduced, except in the very short term, by restricting imports,
while the loss of the benefits which flow from free trade keeps prices
high and depresses real incomes further.
The rather novel combination of high unemployment and a high rate
of inflation still being experienced by a number of major developed countries
is due, in my opinion, to two factors in the first place, to a failure to
allow real incomes to adjust downwards sufficiently to offset the dramatic
increase in the size of the transfers made to the oil producing countries;
and, secondly, to attempts by governments to follow budgetary, fiscal and
monetary policies inconsistent with realistic growth rates for their
economies.
Hong Kong's