Business Economics

Protectionism and Leverage

I came across two very interesting charts today that really have me thinking. I’m not exactly sure what conclusions to draw yet.

The first chart was a depiction of the results of a GE survey regarding protectionist policies. Basically, more CEOs than not believe their businesses would benefit from the implementation of protectionist policies on innovation by their respective countries.

It looks like the wave of nationalism has climbed the corporate ladder to the C-suite, which is pretty interesting. I’m not entirely sure what to think about this right now but there are a lot of folks that point to the increase in protectionist measures punctuated by the Smoot-Hawley tariffs in 1930 that kicked off the Great Depression. I believe there were other important catalysts beyond protectionism that led to the Depression. Regardless, in a world of liberal trade policies between nations an increase in protectionist measures is sure to throw a wrench into the gears, especially for large exporting nations such as China and Germany.

The second chart I found to be rather interesting was from Moody’s, declaring the US government as one of the highest leveraged governments in the developed world. I’m sure the proposed fiscal 2019 federal budget doesn’t help the cause. This potentially has major implications as it could negatively impact Wall Street and Main Street. I don’t know how universally held this view is within the investment community or if Moody’s cherry-picked certain data points, but higher national leverage can potentially lead to pernicious outcomes from lower growth rates to potentially higher inflation. Definitely something worth reflecting upon.