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[Op-ed ] Protectionist Trade War

Posted December. 24, 2008 07:13,   


The United States has acted as if it has always supported free trade, but it has not. U.S. President-elect Barack Obama’s role model of Abraham Lincoln, who was president from 1861 to 1865, was a Republican but strongly supported trade protectionism. To finance the Civil War, Lincoln even imposed a hefty tax. After the war, the U.S. tax rate returned to a pre-war level but heavy tariffs on imports remained until 1913. Trade protectionism helped the U.S. industry, whose competitiveness was weaker than that of Europe, to grow.

When the Great Depression hit in 1929, the United States got more protectionist on trade, levying an average tariff of 48 percent on more than 20,000 imported products to protect its industries through the Smoot-Hawley Act. Columbia University economics professor Jagdish N. Bhagwati said the act “was a most clearly and extremely stupid anti-trade act.” After the anti-free trade act was introduced, the United Kingdom, which had long supported free trade, began re-imposing tariffs in 1932, heralding the end of the free trade era.

A few months ago, the leaders of the world’s top 20 economies said they will support the principles of free market economics. Yet they are rushing to raise tariffs. Russia raised its tariffs up to 35 percent to protect its own auto industry, and Japan and China are also expected to raise tariffs. Such a movement had been forecast when Obama urged the government to rescue the three largest U.S. carmakers. Even North Korea has raised tariffs on imported cars to protect its domestic automaker Pyeonghwa Motor, whose products are assembled and manufactured in the North. The global rush to raise tariffs is tantamount to a “tariff war.”

Protectionism in the 1930s created trade barriers in the global market, inviting recession and preventing the United States from recovering from the Great Depression. Worse, Germany and Japan formed cartels to protect their own industries, which, in turn, brought about fascism. This ultimately led to the Second World War. Trade protectionism was effective in nurturing and protecting domestic industries, though temporarily. It is no longer the 1930s, however. The global market changes in real time due to the Internet and wireless communication. As overseas trade has surged, a company’s profit does not benefit only one nation. Trade protectionism cannot be a solution for the global economy’s difficulties. The recently emerging trade protectionism could do more harm to the global economy.

Editorial Writer Chung Sung-hee (shchung@donga.com)