According to data published this week, world trade volumes in July fell at their fastest rate since the early days of the pandemic, down 3.2 pc on the same month the year before. This follows a similar decline in June.
This is more likely to have been caused by a slowing global economy than anything more sinister, but lurking in the background is a phenomenon of rather more lasting concern – a growing outbreak of protectionism hiding behind the catchall justifications of increased geopolitical insecurity, the green energy transition, and – following the pandemic and the war in Ukraine – the now almost universal pursuit among nations of greater economic resilience.
I hesitate to draw any parallel with the 1930s, because in almost every regard today’s world is very different from the one that ruled back then. Nor is the groundswell of protectionism anywhere near as bad, so far at least.
But no-one should be in any doubt about what happens when this sort of response to economic weakness is allowed to gain the upper hand.
The 1930s act as a terrible reminder. Even when it results in a deficit, all trade is good, helping countries to specialise in the things they are best at while allowing poorly-performing industries that other countries do better to fall by the wayside.
A good way of illustrating the point is to think back to a pre-industrial, pre-trade era when households were widely obliged to make their own provision for large swathes of their daily needs.
Today, the world of work is by contrast highly specialised. We perform tasks which in themselves account for only a tiny fraction of what we need to live, and in many cases don’t consume at all ourselves.
Instead, we use our earnings to buy goods and services from other specialised workers, creating a virtuous circle of efficiency gain. The same law of so-called comparative advantage applies to international trade, at least in theory.
Yet fewer and fewer political leaders are prepared to stand up and defend this abiding truth in any meaningful way. Instead, the first response to any economic weakness is to reach for the protectionist playbook.
The tit for tat trade barriers of the interwar years actually began well before the notorious Smoot-Hawley Act of 1930, which raised already high US tariffs on imported goods by a further 20pc on average.
But it is these two names that will forever be synonymous with the outbreak of mutually destructive protectionism that subsequently ensued.
Whether Smoot-Hawley caused the Great Depression, or was just a symptom of it, remains hotly disputed, but whatever the answer, it certainly made a bad situation very much worse.
When it came to our own twenty-first century version of the banking crisis of those years, world leaders rushed to recommit to the virtues of free trade.
G20 leaders meeting in London in the summer of 2009 pledged in their concluding communique to do “whatever is necessary … to promote global trade and investment and reject protectionism”.
They further committed to refraining from any new barriers to trade, to reversing any that had already been imposed, and to abide by the rules and judgements of the World Trade Organisation.
It scarcely needs saying that no sooner had they returned home that they set about doing the very reverse. This reached its natural conclusion in the Trump tariffs of 2018, mainly aimed at China, but also ensnaring some supposed Western allies.
America once more embraced the idea that protectionism, far from being an economic curse, could be made to support both jobs and growth.
The Biden administration has been even worse.
Virtually all the Trump-era tariffs remain in place, some high-end technology exports to China have been banned altogether, and massive subsidies have been applied in an attempt to galvanise “a made in America” manufacturing renaissance based around net zero goals.
Despite its po-faced pursuit of so-called “strategic autonomy”, which theoretically requires the European Union to steer a middle course between the superpower rivalry of the US and China, Brussels has been swift to follow suit.
State aid rules have been thrown to the wind in a huge programme of subsidies for green energy industries and infrastructure.
And just recently, Ursula von der Leyen, president of the European Commission, has announced an investigation of subsidies for Chinese electric vehicles, implying higher tariffs to come.
“What took you so long”, say many in the US Department of Commerce, which already imposes a 27.5pc tariff on Chinese car imports, against the EU’s 10pc.
All this takes place against a backdrop of economic stagnation, acute concern over undue economic reliance on potentially hostile powers, and the growing challenges of climate change.
Europe only has itself to blame for today’s predicament.
The same applies to the UK. To set demanding net zero targets – in particular, the ban on the internal combustion engine from 2035 onwards – without first putting in place the industrial policies needed to meet them was madness.
The upshot is a massive industrial opportunity for China, which has been investing heavily in EVs for a long time now and already controls around three quarters of global battery cell production.
It also has an iron grip on the raw materials needed to produce them. Already, its EVs are making big inroads into the European market, threatening what has historically been one of the Continent’s key industries.
The protectionist response is therefore wholly unsurprising.
By luck rather than design, Britain is less exposed to this self imposed process of product obsolescence than any of the other major European economies, having run down its mass production auto industry decades ago, and therefore has less to lose and more to gain from the cheap – and no doubt subsidised – consumer prices that China has to offer.
Even so, the protectionist instinct runs deep. Downing Street is coughing up £500m to keep a bastardised version of the Port Talbot steel works open, justified on the basis that for strategic reasons alone we need some remaining steel capacity.
Why? Steel is massively oversupplied globally, and there are multiple different producers internationally from which to choose.
Free trade is not just a time-honoured route to economic prosperity, but because both sides have so much to lose, is also a potent guarantee of peace between nations.
Of course, free trade also needs to be fair trade, or it becomes a source of friction.
As the Chinese economy collapses in on itself, expect it to start exporting its deflation by dumping its excess production on the rest of the world, adding to current trade tensions and further bolstering calls for protectionist measures.
As I say, I don’t like historical parallels, but isn’t this pretty much what happened in the 1930s?