The Other Danger of Protectionism

Typically, if one country engages in protectionism, others will respond in kind. That’s exactly what’s about to happen:

Four years after the WTO ruled against the United States, Congress has still failed to repeal export subsidies, known as the extraterritorial income exclusion, that the trade organization determined to be illegal. The WTO gave the Europeans permission to impose sanctions totaling $4 billion a year, and the EU responded last April with a long list of targets politically sensitive to President Bush, including Florida citrus, Carolina textiles, Wisconsin paper products and iron and steel from Ohio, Pennsylvania and West Virginia.

… The tariffs will start at 5 percent of the products’ value, or an estimated $16.5 million in March, but will climb a percentage point each month that Congress fails to act, Lamy said. That could bring the sanctions to about $315 million for 2004.

.. [European Union Trade Commissioner] Lamy said that by slowly ratcheting up the pain, the EU will “focus the mind on the necessity to repeal.”

With free trade, jobs are lost but the economy overall benefits (however, not every sector benefits — hence the need for programs like wage insurance); prices are also lower, which benefits consumers. With trade wars jobs are also lost, but GDP falls and consumers get to pay more for the goods they buy.

Thanks to mega mike for the link to the story.