Fear the coming era of protectionism

Modern history can be divided into periods of globalisation and protectionism, says Merryn Somerset Webb. The latter have not been the good ones.

How important is free global trade to your living standards? The answer can be easily illustrated with reference to a sandwich made by one Andy George late last year. Worried that Americans are increasingly clueless about how food is produced he set about making a single chicken and cheese sandwich from scratch on screen.

He made his own cheese, harvested his own wheat, collected honey to sweeten his bread, killed a chicken himself, evaporated sea water to get salt to pickle his homegrown cucumber and grew his own sunflower seeds for oil. The whole thing cost him six months and around $1,500 or 300 times the cost of the average sandwich.

George is clearly now a tad more in touch with food production in America than he once was. But his experience also exemplifies how ridiculously inefficient it is to do things without trade. And while it is (obviously) an extreme example, it is also a reminder that getting blas about the benefits of free trade to the world as a whole is a bad idea something that makes the recent trend for demanding that it be curtailed rather worrying.

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Look to the US. Trump has made it very clear that his is an anti-free-trade agenda. He wants US firms to be made to invest their cash reserves in the US, notes The Guardian: he reckons that their global investments have been made at the expense of the American worker. He thinks that the North American Free Trade Agreement (Nafta) has meant that jobs that should be located in the US have moved to Mexico. He is anti the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership and just for good measure he reckons that there should be a 45% tariff on anything imported from China.

Hillary Clinton doesn't agree with him on much. But it looks like she is coming round on this. Earlier this month she told a thrilled audience in Detroit that "I will stop any trade deal that kills jobs or holds down wages including the Trans-Pacific Partnership". Then there is the UK. Here many are hoping that Brexit will result in policies that protect UK industries from external competition (something that isn't going to fit well with the fact that Brenaissance is currently winning our competition as the word we will use to replace Brexit).

This isn't just electioneering talk. The World Trade Organisation released a report back in June pointing out that over the previous year, G20 economies had rolled out new protectionist trade measures at the rate of eight a week. It makes sense that populations are demanding change in the wake of years of stagnant wages. But this isn't the change they need (see this week's cover story and City View for alternative routes to growth). Modern history can be quite neatly divided into periods of globalisation and periods of protectionism. The latter have not been the good ones.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.