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Is protectionism really a major issue?

As the heads of Europe meet this weekend to discuss the ongoing economic downturn the subject of protectionism has reared its head again. Interestingly countries such as France and Italy have recently leapt to the defence of their car industries for example with substantial funding and a heavy promotion of this particular sector to try and save it from bankruptcy. However, the UK and Germany have so far resisted the temptation to plough substantial funding into their own car industries although the reasons for this non-activity have attracted significant criticism.

The issue of protectionism is one which is sure to grab the headlines as economies around the world continue to decline because in effect it is a promotion and encouragement of the national population of any one country to buy their products and services from "home grown companies". Indeed, the US government has gone one step further by formally introducing such changes into the array of rescue packages and bailout programs currently ongoing.

It is also interesting to see that while there are valid reasons for considering protectionism, history shows us that this is a double-edged sword as it reduces world trade which will slow down any potential recovery in the worldwide economy. Protectionism is a very potent strategy with serious medium to long term implications.

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