In all the comparisons between the Great Recession of the past three years and the Great Depression of the 1930s, one comforting thought for policymakers has been that there has been no return to tit-for-tat protectionism.
Yet the commitment of governments this time round to keep markets open was based on the belief that recovery would be swift and sustained. If, as many now suspect, the global economy is stuck in a low-growth, high-unemployment rut, the pressures for protectionism will grow.
Despite a colossal stimulus, the recovery has been short-lived and, by historic standards, feeble. The traditional tools — cutting interest rates and spending more public money — were not enough. Finance ministries and central banks cannot cut interest rates any further; there is strong resistance from both markets and voters to further fiscal stimulus. So what’s left?
The answer is that countries can try to give themselves an edge by manipulating their currencies, or they can go the whole hog and put up trade barriers. Both options are currently “in play”. Guido Mantega, Brazil’s finance minister, warns that an “international currency war” has broken out. It is not difficult to see why individual nations are pursuing this strategy.
The lesson from the 1930s is that those countries that devalue their currencies early steal a march on their rivals. But currency intervention is one thing, full-on protectionism another. The question now is whether the commitment to free trade is as deep as it seems.
The trade liberalisation talks that were started in Doha nine years ago remain in deep freeze. Attempts to conclude the talks always run into the same problem: trade ministers talk like free traders but they act like mercantilists, seeking to extract the maximum amount of concessions for their exporters while giving away as little as possible in terms of access to their own domestic markets.