As governments around the world fight rising unemployment, falling exports and bank credit crunch, and several central banks are facing liquidity traps, many are turning to restrictions that privilege national producers. These populist measures attempt to minimize growth impact, social unrest and pain from the credit crunch that poses a risk to several ruling governments, especially those facing elections soon. Furthermore, some officials hope that such restrictions will reduce the leakage of the scarce funds used in bank bailouts and fiscal stimulus to other countries.

But as history shows, the impacts of trade protectionism on exports and job creation if any are small in the short-term and instead may lead to global retaliation, and in the long-term result in inefficient allocation of labor and capital and trade distortions, affecting potential

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From "Trade-Finance Pinch Hurts the Healthy," WSJ, 12/22/08:

The global financial crisis is drying up the financing that firms depend on for trade. That's making the global recession nastier and deeper than it otherwise would be.

As with all kinds of credit these days, financial institutions are making less trade finance available and charging more for it. But the squeeze in trade stands out because it pinches otherwise healthy companies that should be driving a recovery in global commerce. Already, the World Bank predicts trade will contract next year for the first time since 1982.

The Deteriorating Trade Outlook

Here's the IMF's recent forecasts for exports -- from October and then November -- for world trade, disaggregated into advanced and developing country groupings.

Figure 1: Real goods and services exports by country group. Source: IMF, World Economic Outlook Oct. 2008; Nov. 6 WEO update.

These developments in trade financing suggest that

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China’s red-hot economy is officially slowing. Latest data put annual GDP growth at 9.0% in Q3, down from 10.1% in the previous quarter. Most analysts expect further economic easing and accelerated capital flight in Q4. But Jason Simpkins says a correction will actually benefit the Chinese economy, which has been running the risk of overheating. And ’slower’ growth of around 8% next year will still be the envy of the developed world.

This from Money Morning:

On the surface, it appears as though the Chinese economy is suffering along with the rest of the world. The economic crisis that has ensnared Western economies is expected to dampen Chinese exports and there is already evidence of capital flight.

But the real story is that China’s foreign exchange reserves – at $1.9 trillion – remain at an all-time high, and the

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