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The Dangers Of Protectionism

Mar. 06, 2018 1:37 PM ET3 Comments
Kristina Hooper profile picture
Kristina Hooper

Weekly Market Compass: Tariffs take the spotlight once again

By Kristina Hooper, Global Market Strategist. Posted on Expert Investment Views: Invesco US Blog.

Geopolitics is back in the spotlight, with German Chancellor Angela Merkel finally securing a governing coalition after nearly six months of uncertainty, while Italy embarks on its own period of uncertainty given the inconclusive results of its election this past weekend. Italy's voters are following in the recent footsteps of voters in the United Kingdom, the United States, Germany and elsewhere - questioning the "status quo."

Inevitably, that includes questioning current trade and immigration policies. While the official results of the Italian election have not yet been released, it appears that there will be continued uncertainty for some time as parties try to form a governing coalition (as of this point, we don't even know yet which party will be given the first opportunity to form a government). This will be an ongoing saga we will want to follow closely. And that takes us to the biggest geopolitical news of the week.

On March 1, US President Donald Trump announced a 25% tariff on steel imports into the US, and a 10% tariff on aluminum imports. The news reminded me of two books that were formative to framing my views on international trade:

  • Back in 1985 when I was a freshman in high school, I read the autobiography of famed US auto executive Lee Iacocca. He devoted the last few chapters to his views on foreign trade and made a compelling case for protectionism, explaining that he believed in fair trade rather than free trade, and that the US needed to protect industries that were critical to both jobs and national defense. In particular, he focused on how Japanese businesses are backed and aided by the Ministry of International Trade and Industry, and advocated

This article was written by

Kristina Hooper profile picture
Kristina Hooper, CFP, CAIA, CIMA, ChFC, is Global Market Strategist at Invesco US. She earned a B.A. from Wellesley College, a J.D. from Pace Law and an M.B.A. in finance from NYU, where she was a teaching fellow in macroeconomics.

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Comments (3)

Wonderful theories however, one can argue that many countries have given lip service to 'free trade' for decades while imposing restrictions on our own exports. In reality, there is little 'free trade'. The people/small towns/industries that have been decimated by over-supplied/subsidized products also deserve consideration. Finally, in a time of real need, we might regret having to depend on a foreign supplier for that key material that could be needed for national defense.
Calculus profile picture
the problem is deflation not inflation as these are all fiat money regimes.
Great article. I agree 100%. Well, almost 100%. The only thing I would like to add is, when we have a trade deficit, those having surplus against us will buy our Treasury bonds, which will be good for us in many ways, it will keep the yields low, it will keep our interest payment low, and in the long run the money we need to pay back will be reduced substantially due to the fiat currency depreciation (in terms of the buying power). IMO, this whole setup is how it made this country so strong and powerful. Let's not destroy it!
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