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Economic stagnation and the resurgence of trade restrictions

Authors
Disciplines
  • Agricultural Science
  • Economics
  • Political Science

Abstract

Economic stagnation and the resurgence of trade restrictions; Economic stagnation and the resurgence of trade restrictions Jack L. Hervey The recession that has plagued the global economy during the past three years has given rise to a worldwide wave of protection- ism. Confronted with stagnant economic activ- ity and high and rising unemployment, many countries have turned increasingly to restric- tions on imports, or to special subsidies that increase the price competitiveness of their products in international markets. The im- mediate concerns of policy makers about depressed output and high unemployment have contributed to the diversion of their attention toward trade-distorting policies. These policies are perceived by some as remedies for the economic ills of unemploy- ment and under-utilization of plant and equipment, but at best such policies only mask the symptoms and are likely to be met by offsetting distortions by another country's government. Meanwhile, the underlying rationale for why countries engage in international trade is lost. The economic basis for trade is that by specializing in the production and export of goods for which a country has a comparative advantage and importing those goods for which it does not have a comparative advan- tage, the trading countries may each increase their total income. A view of the world that supports the restriction of trade has a long history and in fact was a basic tenet of economic thought during tie mercantilist period of the 16th- 18th centuries. Governments sought to acquire wealth (gold and silver) through the export of high value goods and through restrictions on imports. In more recent history, protection- ism became an important component of trade policy in the early 1900s and reached a peak in 1930 with the Smoot-Hawley tariff. Smoot-Hawley was initially conceived prior to the Great Depression as a means of protect- ing U.S. agriculture, which during the 1920s had become depressed relative to the rest of the econ

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