Protectionism !

The one sure way to escalate this recession into a full blown depression is for countries to retreat into the fortress of protectionism !

That is exactly what happened in 1929. Government's rushed through laws intended to protect their industries - and therefore their jobs. It quickly developed into a tit for tat race that closed down international trade - and left each country with unsold and unwanted goods - and millions unemployed.

The concept certainly has appeal - and it is rearing it's ugly head both here and in America !

The Electrical Trade Union of Australia is calling for Kevin Rudd to include a " Buy Australian " clause in the proposed $ 42 billion stimulus package battling it's way through parliament.

The American steel industry asked Barak Obama to ban foreign steel from the the infrastructure renewal component of his national stimulus bill.

To many people that concept makes sense. What is the use of spending money to keep jobs functional if the material used is from a foreign country and the local industry is shedding jobs because of lack of orders ?

The sticking point is committing " buy local " to law. The moment that is done we have fired the first shot in a trade war.

There will be a natural tendency to use local products in tough times, but the deciding factor will be price. If competitor's products are banned the local industry has no incentive to keep it's prices reasonable.

Governments must be vigilant to ensure foreign goods are not dumped here but local suppliers must be just as competitive as in good times. Open competition is the great leveler - and the sure way to disaster is to close the door to competitive trade.

America rejected the idea of only allowing American made steel to be used in it's stimulus package - and we need to be equally dismissive of protectionism !

If not - the lesson of 1929 is about to be repeated !