Abstract
The US periodically goes through flare-ups of protectionism. While wiser heads
typically prevail in controlling the flames, we are now going into a new cycle
that has the potential to become a major inferno. The reason: the US is about
to enter something of a perfect protectionist storm, embarking on a recession
at the same time that foreign trade and balance of payment deficits
(especially with China) are high, in the midst of what is likely to be a close
election campaign between a Republican “free trader” and a Democratic “fair
trader.”
With heated debates and a Democrat-controlled Congress almost inevitable,
protectionist fervor is almost certain to ignite. We hope the focus will
continue to be on traditional hot spots such as manufacturing, agricultural
goods, or possibly foreign acquisition of US assets. With luck, it will bypass
the really critical issue of services globalization until after the election,
when we have a slightly better chance of entering into a rational discussion
of the real issues rather than a bout of competing, populist sound bites.
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