Business
Economics Nobel laureate and Harvard professor Eric Maskin raises a red flag on protectionism. Speaking on the sidelines of the Summit he reminds us that protectionist policy mistakes turned the recession that followed the Great Crash of 1929 into the Great Depression of the 1930s. Avoiding those mistakes again is important, he says, if the recovery from the Great Recession that followed the 2008 Global Financial Crisis is to be sustained.
The issue has been raised by Brazilian Finance Minister Guido Mantega remounting an old warhorse he first rode in 2010, competitive devaluations, more colorfully known as 'currency wars'. He called the third round of quantitative easing (QE3) announced last week by the U.S. Federal Reserve "protectionist". His argument is this: QE3 depresses the dollar and boosts US exports, but will have little effect overall on an economy that is already awash with liquidity. Mantenga sees evidence for his theory in the Bank of Japan's resumption of its asset purchase program in the immediate wake of the U.S. Fed's announcement. Others may see the reverse of the yuan's appreciation in the same vein. Meanwhile, the U.S. has complained about Brazil raising import tariffs.
How much of that is in the eye of the beholder, and how much appetite there is for a currency war is moot. Governments have mostly held fast in their pledges given in the wake of the 2008 global financial crisis not to resort to protectionist measures. But, as Maskin reminds us, with recovery in the developed economies remaining sluggish, growth in the stimulus-infused developing economies slowing, and leadership contests in the world's two largest economies, the U.S. and China, stoking nationalist rhetoric on trade and investment, the world needs to remain watchful that that resolve doesn't weaken.
