When global stock markets were rising in 2009, and government co-operation was thought to have saved the world from economic catastrophe, the continued deterioration of trade ties between the US and China went largely unnoticed. However, rising protectionism is now here, and I think this issue will rise in significance over the coming months.

Chinese Exports, US$bn

After a torrent of tariff increases by the US government, it is unsurprising that the Chinese government imposed preliminary anti-dumping duties of up to 105% on broiler chicken imports from the US on February 5. Beijing argues that the US has dumped broiler chickens in China, the largest importer of US poultry products, which have hurt local producers.

1930s A Worrying Precedent
With China now retaliating against US poultry exporters, the US may decide to stem the protectionist tide. However, with President Obama scrambling for union support and able to blame China’s ‘currency manipulation’ for these tariff increases, further protectionist measures by the US seem likely. To be sure, it is widely believed that politicians are aware of the devastating impact that rising protectionism can have on global trade and economic output, and that the Smoot-Hawley Tariff Act of 1930 contributed to the intensity of the Great Depression. This is used as an argument as to why we will not go down the protectionist road this time around. However, what should happen and what will happen are two different things. Indeed, paying no attention to asset prices in monetary policy was also an obvious policy error common to both time periods, and it seems that the chances of escalating trade tensions will rise if the US heads back into recession, which would only exacerbate the downturn, in our view.