There is evidence of the revival of protectionist attitudes in developed countries, notably the United States and Western Europe. This chapter reviews some aspects of this protectionist renaissance, focusing particularly on the relationship between protection and macroeconomic events and policies.

Protection and macroeconomic policies

Recessions bring protection

From 1980 to 1982 the developed world passed through a major recession created essentially by tight monetary policies designed to squeeze inflation out of the system. During this period protectionist pressures increased, and there were also some increases in actual protection. The issue arose again in the United States in 1991; as a result of the recession of that year, there was a powerful revival of protectionist attitudes directed particularly against Japan. This experience raises the important issue of the connection between two sets of government policies – protection policies and macroeconomic policies. One has to consider the case where macroeconomic policies may have induced a recession or may have failed to prevent a recession caused by other factors and where the recession in turn has induced pressures to increase protection.

Policies of monetary tightness squeeze profitability and reduce employment, one aim – perhaps the primary one – being to moderate wage increases. If the moderation in wages anticipated the monetary squeeze, or at least followed it very closely, then profitability and employment would not need to fall, and the desired decline in the rate of inflation could be brought about without cost.