Michael Pettis has an interesting observation about how Smoot-Hawley may return not in the form of import tariffs but in the form of export subsidies and devaluations.

While everyone watches fairly closely and with dread to see if the US re-enacts new versions of Smoot-Hawley by attempting to resolve declines in domestic demand via beggar-thy-neighbor trade polices, the real threat may come from somewhere else. Current-account-surplus countries may, just as they did in the 1930s, find themselves under immense pressure to support their export sectors. Already we are seeing this in China, and I suspect a lot of other Asian exporters are also casting at ways to boost their own export industries. One of the things the participants in the upcoming G20 meeting Washington should watch very closely is export subsidies and currency policies aimed at boosting exports. US imports must decline as a share of global demand, for reasons that have been widely discussed and widely accepted, and because of this, unlike in previous crises in the past two decades, the world won't all be able to export its way out of this crisis.





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