Protectionism is NOT the answer

With the rapidly rising rates of unemployment around the globe, finding work has become harder for the recently unemployed. Today's NY Times reports that not only is unempployment rapidly soaring in the U.S., but soaring globally in every region. In our interconnected global economy, trading goods and services is one way to help create more global output. Based on a country's comparative advantage, countries will export the goods and services where they possess a comparative advantage relative to other nations. This policy, which has been adopted by major developed countries, has lead to vast amounts of global trade.

However, when the world goes into a recession, and job losses begin to mount, union pressure to "Buy American" or buy domestically produced goods and services rises. However, this protectionist thinking does not increase global output and will only ensure higher prices for the countries that maintain this policy since countries will not trade goods for other goods where they do not have the comparative advantage.

Get ready for lower levels of global trade in 2009. With Taiwan's exports reported to be down 42.9% compared to a year ago, America's steep decline in income is surely not helping. Electronics is a chief export of many Asian economies. With Americans worried about when or whether their job will be safe, Americans aren't spending on discretionary purchases like they use to prior to last summer. The IMF needs to convince every nation not to institute protectionist measures to provide immediate jobs to their citizens. For if this were to increasingly occur, higher prices, less selection and lower global output would result.