XN000022-1978-05-08 — Page 11

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