Protectionism - the real threat to growth, stability
Updated: 2007-08-03 13:54
The author Dr John Rutledge is a leading economist who has advised several presidents, including the current administration, as well as multinational corporations and financial institutions
At Nobelist Robert Mundell's recent Santa Columba Conference, the assembled group of specialists in international finance agreed on two points: 1) the global economy is growing faster than at any time in history, and 2) the number one risk to sustained global growth is rising protectionism in the United States.
This week in Washington, short-term politics won over long-term economics and basic humanity when the Senate Banking Committee voted in favor of a protectionist bill, joining a long list of bills aimed at China.
There is a race to the bottom among American politicians to determine who will get the honor of leading the lynch mob that blames China for every real or imagined economic ill. These political leaders are competing for short-term political gain at the risk of the global growth that is lifting billions of people out of poverty around the world. Worse still, they know exactly what they are doing.
On Wednesday of this week, 1,028 economists signed a petition to members of Congress, advising them of the immense benefits of free and open trade in goods, services, and capital, and warning them of the grave risk to growth and stability, both in and outside the US, from escalating protectionist measures that could lead to a global trade war.
As one of the signers of the petition, I spoke on the issue at a press conference on Capitol Hill organized by the Club for Growth, who ran the signed petition as a full-page display in the Wall Street Journal. Let's hope we had some effect on the policy makers.
Not coincidentally, 77 years ago, in May, 1930, 1,028 economists signed a similar petition, which ran as a full page in the New York Times. They were trying to convince Congress not to pass the Smoot-Hawley tariff legislation. They failed. I am convinced the tariffs then were a major contributor to the length and severity of the Great Depression that followed.
Today's global economy is in great shape. Global economic growth in 2006 was an incredible 5.4 percent, compared with 2.9 percent during 1950-73, when Europe and Japan were rebuilding their economies after the war, and 1.3 percent during the 1870-1913 industrial revolution. The IMF predicts 5 percent growth for both 2007 and 2008, which would mark the sixth straight year of growth in excess of 4 percent. Developing Asia - the epicenter of the world's economic growth explosion - will grow at nearly twice that rate, led by the spectacular growth of China.
The US economy is in good shape too, with growth in excess of 3 percent, contained inflation, profit growth of over 14 percent in the most recent quarter, and long-term interest rates below 5 percent.
If things are so good, then why are voters demanding protectionism?
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