Does monetary protectionism lead to trade protectionism?
Nov 11th 2010, 22:48 by G.I. | WASHINGTON, DC
[Greg Ip] BEHIND today’s hand-wringing over currency wars is the fear that it’s one small step from currency intervention and capital controls to traditional, noxious protectionism: tariffs, quotas, subsidies, etc. For example, Gerald O’Driscoll at the Cato Institute writes:
The Fed’s announced purchase is an exercise in monetary protectionism. It has already produced countermeasures in terms of capital controls by Brazil and perhaps others. It may lead to trade protectionist countermeasures. Monetary protectionism breeds trade protectionism and risks a global meltdown in trade as occurred in the 1930s, which paved the way for World War II.
And Alan Greenspan obliquely makes the same point today in the Financial Times.
But is it true? Does monetary protectionism breed traditional protectionism? I could argue the opposite. If monetary protectionism softens the pain felt by the trade sector, it weakens demands for the traditional variety. When America succeeded in devaluing the dollar against the yuan in 2005, it stopped the momentum of anti-China trade bills in Congress.
The original blog post is linked here.