Free trade would lessen effects of global crises

Freedom New Mexico

The Iceland volcano hasn’t merely disrupted travel across much of Europe, it also is blowing ash over the global economy in the midst of a recession already the worst since the Great Depression.

“The tentacles of the crisis have already stretched into the global supply chain,” the Washington Post reported Monday. Among those affected are Chinese companies that used electronic parts flown in from Germany and have halted production. In America, “UPS and FedEx posted notices to customers about delays in shipments to Europe, and FedEx temporarily halted some of its services.”

The European Union is now the world’s largest economy, so any slowdown there likely will affect the rest of the world. “The volcano has disrupted Europe’s international trade in a big way,” said Dan Griswold, director of the Center for Trade Policy Studies at the libertarian Cato Institute. “Air freight now accounts for 40 percent of world trade; so, much of Europe’s trade has been grounded along with passengers. The most visible effect has been on travel, tourism, perishable products such as tropical produce and flowers, and high-value items such as diamonds.”

He added that, except for tourism, the damage to the U.S. economy and the rest of the world has been minimal so far. “But the effects could snowball in the days ahead with the growing disruption of global supply chains that depend on just-in-time deliveries,” he added.

Griswold also believes that, if the ash cloud over Europe — and now reaching some parts of the Northeastern United States — dissipates soon, not much damage will be done to the U.S. employment or the overall economy. The way he sees it, “This is more like the brief West Coast dock strike of October 2005. It reminds us of the importance of globalization in our daily lives, and how complex global markets can be disrupted by natural disasters or misguided government intervention.”

The ash cloud’s disruption of trade is also a reminder, he said, of the interconnectedness of the global economy today, and of the importance of free trade to everyone’s prosperity.

Things could be a lot worse. When a different volcano erupted in Iceland in 1783, according to AP, “Crop production fell in Western Europe. Famine spread.” Today, interconnected global food markets would, of course, prevent any famine.

Although restrictions on trade are relatively low right now in America, the pressure for protectionism always exists, especially in tough economic times. Fortunately, economists now almost unanimously recognize that the 1930 Smoot-Hawley tariff made the economy much worse during the Great Depression of the 1930s; and President Richard Nixon’s 1971 tariff of 10 percent contributed to the stagflation and “malaise economy” of the 1970s.

In short, global free trade is the way to go, and will help Europe and the rest of the world recover from the volcano’s physical and economic damage.