[Viewpoint]With protectionism, the deluge

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[Viewpoint]With protectionism, the deluge

Is an age of strong wind and angry waves approaching? Existing theories that explained how the world economy works are falling apart and global society is taking one unstable step after another, as if walking on a tightrope. Above all, dark clouds of protectionism are gathering fast.

As other dominant powers did in the past, the United States enjoyed consuming much more than it earned. Americans led abundant lives based on credit card debt, and their government went to war in Iraq even though it had an enormous financial deficit.

Even people with bad credit could easily buy houses thanks to an expansive economic policy and overflowing loans. This led to a real estate boom.

However, once the real estate bubble burst, it was not only U.S. financial companies but also financial firms around the world that crumbled.

The international financial crisis is now spreading as the worst crisis for the real economy in 70 years.

However, countries like China, which have worked hard to catch up with dominant economic powers, have contrasting trends.

By consuming much less than they produce, concentrating on saving and exporting goods to foreign countries, China has grown rapidly.

It bought U.S. Treasury bonds with the money it earned overseas, pumped up exports and satisfied the excessive American appetite for consumption at the same time by providing capital to the United States.

However, when the economic good times started to die down and consumption shrank in the United States, imports from countries like China decreased rapidly.

The problem of disposing of goods produced in excess emerged.

Obviously, the best case scenario would be for China itself to consume more. However, the problem is that China cannot change into a consumption-oriented economy overnight because the Chinese people are attached - both psychologically and systemically - to the export-oriented economic model that had been successful for the past 30 years.

That is, an increase in domestic consumption in China cannot be an effective solution to the immediate crisis.

Goods that are over-produced in East Asian countries, including China, are fomenting protectionism in the international economy.

Under such circumstances, Timothy F. Geithner, the U.S. Treasury secretary, criticized China for attempting to manipulate its currency’s exchange rate to favor Chinese exports. China retorted that this was an irresponsible remark.

In addition, although it was softened by the U.S. Senate, the economic stimulus bill passed by the House of Representatives includes a “Buy American” provision stipulating that construction projects under the stimulus program should use only domestically produced steel.

European countries criticized the rescue steps taken by the U.S. government for its automobile industry as protectionist measures that violated World Trade Organization regulations.

If the United States and China begin competitive protectionism, and it spreads internationally, what will happen?

Just as the Great Depression of the 1930s lead to a culture of protectionism and was one of the contributing factors to the Second World War, this could lead to a great international political catastrophe.

Protectionism will ultimately ruin every economy in the world. If the economy worsens and the number of unemployed people increases, dissatisfaction will rise accordingly.

Under such circumstances, domestic politics become unstable, populist leaders or extreme nationalists would gain power. This is what happened in the 1930s when Adolf Hitler took power in Germany and a militaristic regime took the reins in Japan.

If a protectionist competition starts between the United States and China, the cooperative sentiment between the two over the past 30 years will change to mistrust and confrontation and lead to destabilization of international politics.

The cooperative relationship between the United States and China over the years has been the axis of international efforts to stabilize the situation on the Korean Peninsula, including the North Korean nuclear issue.

If corrosive competition begins between the U.S. and China, the situation on the peninsula will grow more unstable.

On top of that, if the world economy remains stagnant and protectionism thrives, economic assistance to North Korea will decrease. Will North Korea, which survives on external support, be able to manage under such circumstances?

If the global economy is ushered into a culture of protectionism, the countries that will suffer most are export-oriented ones with relatively small economies, like Korea.

If exports fall, many people will lose their jobs, and political grievances will accumulate rapidly.

The candlelight vigils staged over months last year have proven that Korea’s democratic system and national capacity are not strong enough to accommodate such political dissent smoothly.

Today’s realities are so serious that many people are losing sleep over it. What are the specific policy alternatives and fundamental social safety nets that will prevent polarization and the recurrence of cases like the Yongsan fire?

How can we provide a democratic solution that will silence political complaints in the face of crisis and unify the people? How can we manage destabilizing factors with North Korea, which are steadily increasing?

There are more than a few urgent problems that the government and the opposition parties should think about and discuss together seriously. Are Korean politicians fulfilling their duties?

*The writer is a professor of international politics at Seoul National University. Translation by the JoongAng Daily staff.

by Yoon Young-kwan
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