International Trade and Politics professor Daniel Drezner worries that one of the “non-obvious geopolitical implications” of the world's financial crisis is that the developing world will either stop buying stuff from developed nations – that would be Canada, folks — or it will raise trade barriers in order to protect domestic industry:
The tight coupling of the global economy caused export-dependent economies to face significant downturns because of the collapse in demand from the OECD nations. These governments will respond to the current crisis by creating the trade equivalent of currency reserves – that is to say, creating a protected space of demand for national champions. The most direct way to do this will be to boost domestic demand while restricting competition from foreign producers. As states plan to expand their fiscal policy, it should be relatively easy – via procurement rules and concentrating expenditures on non-tradable goods – to target new government spending towards domestic firms.
This kind of decoupling would contribute to the unwinding of the macroeconomic imbalances caused by the Bretton Woods II arrangements. It would also, however, be sure to reduce overall economic growth even further. It would also reduce whatever constraints economic interdependence has placed on aggressive action in world politics.
If this happens this would be a big problem for Canada and much of the West and was just what Prime Minister Harper warned against in this speech at APEC in Peru in November:
… we must continue to commit ourselves to an open and freer trade system and be vigilant against the rise of protectionism. When it comes to Canada’s support of free and open economies and markets, our view is based on the success of our North American economic partnership. We took a close and trusting relationship with the United States and transformed it into the most successful commercial partnership in the world. …
Canada is committed to pursuing mutually beneficial economic relationships with like-minded nations around the world. …
We must remember, notwithstanding our current difficulties, the prosperity generated around the world in the last part of the 20th century and the beginning of the 21st has been unprecedented in history. Removing protectionist barriers and easing trade restrictions helped to usher in this extraordinary era. In these times of economic instability, we cannot turn back. Now is the time for opening doors, not for erecting walls. . . .
… let us remember what led to the Great Depression. It was not caused by a stock market crash. That was only the beginning. Policymakers pursued four sets of actions that defined that terrible decade. They allowed a rapid contraction of the banking system. They allowed widespread deflation as a consequence. They undertook to balance the books at all costs – raising taxes and contracting government economic activity at the one time when fiscal stimulus was absolutely essential. And, finally, they erected protectionist barriers in a short-sighted attempt to preserve jobs. These are mistakes the Government of Canada will not make.