World War III

One never knows from whence threats to world stability on the magnitude of beggaring whole societies might come from. Germany, it might be recalled, hugely resented the strictures placed upon it by Europe after World War One, as war restitution. Beggaring it and throwing its people out of employment and, it has been rumoured, becoming the impetus for what became World War Two.

Another war looms large on the horizon, and it too entails countries whose economies have been shoved off the rails, thanks to international financial relations, and a market fall-out collapsing the U.S. economy and by extension that of the entire globe. Blame, however, has not been meanly apportioned. Instead global leaders met with great fanfare and hand-wringing, and pledged to uphold the concept of free trade.

For to do otherwise, as was amply demonstrated some 70 years ago, would be to lead to something called the Great Depression. An economic downfall that became the scourge of international society leaving, in its dire wake collapsed empires and a global population without work, pay cheques and hope for the future.

"In this regard, within the next twelve months, we will refrain from raising new barriers to investment or to trade in goods and services" solemnly pledged the leaders of the G20 nations. However, that was then, this is now, and fearful heads of state are pulling in their pledges, enacting legislation to protect their own dwindling economies.

Russia started by imposing whopping import duties on automobiles, hoping to force good Russian patriots to buy Russian trash instead. The ensuing protests by unemployed Russians have served to jolt the Kremlin out of its placid lassitude. And they've responded by forcing those still employed to mount counter-demonstrations in support of Vladimir Putin and his crew.

Now the new Democratic leadership of the United States has startled the international community by invoking economic xenophobia. The new administration is floating an enormous stimulus bill with the proviso that infrastructure projects will be funded only if U.S.-derived iron and steel is used, closing the door rather effectively on close manufacturing interrelations with, for example, Canada.

And there is Brazil, with its newly imposed import licensing system. And the European reinstatement of subsidies for dairy products. Suddenly the effectiveness of the World Trade Organization's Doha round of trade talks has been dampened. WTO chief Pascal Lamy has professed his deep concern that countries are turning to protectionism.

"It is natural in such a crisis that there is a big call for protection. But that does not mean there should be protectionism," he said. Indeed. The European Union, so agitated with respect to the U.S. move to shut out its trading partners, edged on by a newly-alarmed Canada, has itself been criticized by the Cairns Group, a group of 19 states.

"This is not the leadership we require from key economies at this point in time", claimed the group, which includes Australia, Brazil, Canada, South Africa and Indonesia. The transformation of the global economy into one of international free trade stands on the brink of collapse.

The U.S. move to protect its own industries by shutting out foreign industries, even though in the process the ensuing work will be costlier, and have the effect in the long run, of effecting greater unemployment, reflects the gut reaction to disaster that all nations resort to, when push comes to shove.

But this kind of blatant protectionism represents an unprincipled rejection of trade terms signed on by countries through world trade agreements. The already weakened world economy can only become even weaker as the universal props are pulled out from under their underpinnings.

If the American Congress and Senate, now effectively dominated by Democrats, decide to go forward with their Buy American clause, it will endanger even further the future U.S. recovery, along with that of the rest of the world. Because the Buy American thrust will not stop with iron and steel; it will inevitably branch out to include all manufactured goods bought with stimulus funds.

And as each country begins to impose tariffs they will begin to close in upon themselves. Trade wars will result, and with that the edgy suspicion of one country over another. Resentment, accusations, and general ill feelings will wreak untold damage, setting back global recovery.

The global financial system knows better; it is aware of the dangers inherent in pulling up the castle moats. Trouble is, the legislators aren't asking them, or if they are, they're just not listening.