Five years ago, a new virus brought the global economy to a standstill. Today, an old virus — of protectionism — threatens the world economy. Despite the “90-day pause” in the exorbitant tariff rates US President Donald Trump imposed on America’s trading partners, financial markets remain volatile.

Investors have good reasons to be worried. The last big trade war, nearly a century ago, did not end well. As the leading economies of the world imposed tit-for-tat tariffs in the early 1930s, it only prolonged the severe economic downturn that we now know as the Great Depression. Stock prices, industrial production, and employment collapsed across the globe.

Tariffs are taxes on imports and meant to protect domestic industries. But since most factories rely on imported inputs, protectionism often ends up taxing industrial production and exports.

The economic warfare of the 1930s gave way to gun battles in 1939. World War II lasted six painful years. The world realised that arbitrary trade restrictions could have devastating consequences. As the war ended, a new set of institutions was set up to promote global cooperation on trade and investment flows.

The Generalized Agreement on Tariffs and Trade (GATT) was first signed by 23 countries —........

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