Trade Wars - Isolationism

This title sounds like it belongs to some modern video game rather than reality in which we live. From what I see in the news and comments, what I call the "trade wars", is starting. As John Mauldin writes in his latest newsletter:

Ecuador defaulted on its foreign debt. Since the G20 meeting in Washington in October, five of those countries - Russia, India, Indonesia, Brazil and Argentina - have announced their intentions to raise import tariffs or otherwise restrict trade. Russia has announced plans to raise tariffs on autos; India has already lifted duties on iron, steel and soy; Brazil and Argentina are putting together a case within Mercosur for boosting external tariffs. Vietnam just raised taxes on steel imports to 12% from 8%. The EU said it may reimpose duties of 79% on a paper-binder component in retaliation against China. French President Sarkozy has established a $7.5 bln fund to invest in domestic companies so as to avoid foreign takeovers. China has reinstated export rebates and now we see that US steel, textile and paper markets intend to file complaints against Chinese imports, and did anyone notice that this auto-bailout excludes foreign companies?

It's all about self-preservation.

 

This pretty much describes the beginning of the self-preservation fight among states. No more free trade for some time, obviously. Some brakes will now be artificially applied to economies, as if the slowdown itself was not enough. The scary part is what the political situation will develop into after these steps done in the economy. It is far from over so it will be interesting to watch how things develop in 2009. Fortunately, the consensus among analysts is that there is recovery coming for the US markets in 2009. I assume, seeing that all the markets are so intertwined now, this should push other markets up as well.

If this is the Great Depression II, it is way less scary than some things I've witnessed in Bosnia during civil war. So this pretty much looks like child's play, looking in comparison. Looking forward to recovery later in the year and, in the short term, I wish you happy forthcoming holiday season. I'm also very much looking forward to my Summer/Winter holidays at the end of January.