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Protectionism doesn't pay

The temptation for big deficit countries to turn protectionist right now is strong: the fewer iPads the US consumer buys in from China, the more demand there will be for US-sourced alternatives. And the deficit countries really need the demand: governments are being told by bond markets to cut spending; households are busily saving to replenish their wealth; and businesses are not investing much, fearing anemic demand. Yet it is China, the big surplus country, that is doing most to protect its internal demand by refusing the let the remimbi rise relative to the dollar: it is making China’s manufactured goods look terribly cheap and maintaining a strong backbone to its rapid industrialisation.