When times get hard, it appears that free trade commitments are the first thing to get sacrificed on the altar of populism.  There are a number of reasons for this.  Firstly, in all forms of government (but perhaps most obviously in a democracy), a politician’s primary objective is staying in power.  And when your constituents want something, you feel obligated to deliver the goods, even if you know it’s a bad decision.  It’s easier to ride the wave of public sentiment, no matter how destructive it is, than to make the “right” decision.  

Politicians also have short time horizons; alas, they get to enjoy immediate political points for popular  policies but they are often not around to see the end result of those policies, which are often disastrous.   And, to be sure, let us never forget that many politicians, their scheming aside, are really quite stupid.  Many do not even comprehend the damage they cause. Read the rest of this entry »

When the United States, as self-appointed guardian of global free trade, does not honor her treaty commitments, it should come as no surprise that her trading partners retaliate in kind. Today we see news that Mexico–America’s third-largest trading partner–has slapped new tariff of 10% to 45% on 89 U.S. products in retaliation for the closure of the U.S. border to Mexican trucks.  On the editorial page of the Wall Street Journal, we read that “With the  cost of imported U.S. products now higher, Mexicans will substitute these U.S. brands with products from Europe, Canada, and Latin America.  The retaliation appear to take care not to punish Mexican consumers or producers not give new protection to any special interest in the domestic market.  It’s purpose is to focus Washington on its Nafta commitments.” Read the rest of this entry »

This week’s Economist covered several themes that we ourselves have been covering for the past several months, but we thought we’d start with this gem of a quote:

“The public is scared and uncertain; the politicians are panicky and confused. They are leading each other around and down a worrying spiral of ignorance.”  From “The Spiral of Ignorance”

This certainly seems to be the view of the market.  With the government reluctantly tiptoeing its way into a de facto nationalization of the banking system, the message being sent is one of uncertainty.  And the market hates uncertainty. 

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A lot of ink was spilt in the past few years about the glories of globalization and free trade.  We are big believers in the virtues of free trade, and we were happy to see world policymakers move this direction (even if it was in direct opposition to public opinion).

The problem is that in an integrated world economy, the trade partners that grow rich together also go broke together.  We wrote about this at length in the May 2007 issue of the HS Dent Forecast.(“Going Down With The Ship”), and more recently in the pages of this blog. 

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