1970s Déjà Vu: Will the Current Economic Crisis Spawn Protectionism?

World
leaders have sounded alarm bells against a repeat of policies in the 1930s,
when tit-for-tat protectionism followed hard on the heels of the Wall Street
crash. But they are fighting the wrong enemy. Current events suggest a
different, but still vexing, scenario: the creeping protectionism of the 1970s,
rather than the spiraling protectionism of the 1930s.

In the
1970s, oil-price hikes and other shocks triggered inward-looking, mercantilist
policies, including in Europe and the United States. Immediate policy responses
were not massively protectionist: There was no equivalent of America’s
Smoot-Hawley tariff. But escalating domestic interventions exacerbated economic
stress and prolonged stagnation. Not least, they spawned protectionist
pressures. Industry after industry, coddled by government subsidies at home,
sought protection from foreign competition. The result was the “new
protectionism” of the 1970s and 1980s.

Current
policies to address the financial crisis and the economic recession resemble
Western policies in the 1970s. Will they lead to a new era of protectionism?