Where trade flourishes, business is good. But trade does not always flourish. The linked forces of globalization move in fits and starts.

The authors of Power and Plenty, a new book on trade over the last thousand years, tell us as much. “If anything,” they write, “history suggests that globalization is a fragile and easily reversible process.”

One of the looming threats in 2009 is the reversal in trade flows and increasing barriers to trade.

For the first time since 1982, The World Bank predicts global trade volumes will shrink in 2009. Undoubtedly, global trade enjoyed a boom over the last two decades or so. The global slump, though, is taking a bite out of that happy ride. Already, through November, exports from China, Taiwan, Chile and South Korea plunged by 20% or more.

The falloff in trade is worrisome enough as a globe-trotting investor. In the last several years, companies with operations overseas did much better than those confined to North America. In 2008, though, that wasn’t true. According to Bespoke Investment Group, stocks of companies that booked more than 50% of their revenues abroad fell 46% on average in 2008, versus a drop of 38% for those with no international revenue.

But there are signs that things could get much worse. Because like tea leaves steeping in a pot of hot water, the longer the economic slump persists, the more likely political trouble is to brew. The rise of barriers to trade is a particularly bitter brew of political trouble.

Already, a number of countries have taken actions to close their markets or protect domestic industry. Consider:

- Indonesia – new restrictions on over 500 goods as well as new fees for imports
- Russia – new tariffs on imported cars, poultry and pork
- France – a new state fund to protect French companies from foreign takeovers
- Argentina and Brazil – new tariffs on imported wine, leather goods, peaches and more
- India – a new 20% duty on imported soybean oils.

And then there is the U.S. bailout of the automakers, seen as an unfair subsidy by foreign competitors. This is only a partial list involving some of the bigger economies. However you view these moves politically, there is a good reason we should keep an eye on these things: They will affect how you invest.

For example, Russia is Europe’s largest car market. But now there is a tax on foreign cars of as much as 35%. Moscow wants to protect its automakers. The Russian people are poorer because of it. But as an investor, your favorite automaker, which may have had a nice business selling cars in Russia, may now find it tough going.

Moscow also put high imports on poultry and pork. Russia is the largest market for U.S. poultry. If you own a chicken producer, this is not good news. Your potential profits in a big foreign market are cut, and such tariffs could result in excess poultry staying in the U.S., leading to falling prices and lower profits at home.

All of these kinds of moves tend to happen when economies weaken. They can also bring about nasty trade wars.

In 1930, America passed the Smoot-Hawley Tariff Act. It raised tariffs on a number of imported goods. As the authors of Power and Plenty contend: “It triggered a wave of tariff increases.” By 1931, “average tariffs on foodstuffs had risen 53% in France, 59.5% in Austria, 66% in Italy, 75% in Yugoslavia, more than 80% in Czechoslovakia, Germany, Romania and Spain and to more than 100% in Bulgaria, Finland and Poland.”

These were hard to unwind. It took decades to reverse these anti-trade policies. They certainly didn’t help resolve the Great Depression.

I don’t think it is a coincidence that global trade expanded nearly fourfold since 1990, during a time when the average tariff fell from 26% to 8.8% by 2007.

A reversal of that trend spells bad things for investors. So far, we’re OK. Most of our companies sell goods that other countries can’t get enough of – things like fertilizers, road-building machines and power equipment. In many foreign countries, there is little domestic supply. China, for instance, it is trying to keep fertilizers in, not out. In fact, the Chinese have made it easier to import goods such as potash.

Still, it’s something to watch.

Source: Globalization Halt!

“Apparently, Democrats’ only political goal is to not allow anybody to get rich until the nation is free from poverty, a trip to the doctor is free, and every person (whether they are willing to work or not) makes the same middle-class income,” says Andrew Snyder in Today’s Financial News.

“If we want the American economy to rebound and be successful, we cannot raise more trade barriers. We need to eliminate them and let natural economic laws work. Even more importantly, we need to limit the size of our government and keep the nation’s money in the hands that earned it. “

Once again, politics are getting in the way of running the nation’s businesses. I will give you one guess which party is behind the shenanigans. Yep, it is Nancy Pelosi and her business-hating Democrats.

Apparently, their only political goal is to not allow anybody to get rich until the nation is free from poverty, a trip to the doctor is free, and every person (whether they are willing to work or not) makes the same middle-class income.

As long as Pelosi has control of the big chair in the House, you might as well hang up your goals of becoming a rich businessman. In her eyes, profits are something you can only get if you steal from your neighbor.

Colombia has poor people too

By now, you must have heard of President Bush’s goal of lowering trade barriers with Colombia. With the possibility of being a key ally in Latin America, his administration wants to ensure free trade and continued economic cooperation.

Rational thinkers see there are very few ways, if any, this deal could hurt Americans. But Pelosi and her left-leaning posse are not known for their rational thinking.

Nope, they see this as a political opportunity to stand up for the little guy. You know the guy I am talking about. He has no education, four kids, does not like the way work makes him feel, and has a killer HDTV setup. Until the American taxpayer buys him a pain-free life (and he is locked in as a Democratic voter), international policy is on hold.

Pelosi says she opposes the free-trade deal with Colombia because of the way the country treats its union leaders. They tend to get killed.

I can understand why she feels that is a bad action to support. But has anybody wondered if those labor groups would have to fight less if we let natural economic laws run their course? If free trade were allowed with Colombia, those union leaders would not have time to fight. They would be too busy working.

Vote the “right” way

Let’s face it. In November, we have a very big decision to make. To the right, we could go with a pro-business, free-market protecting leader. And to the left, we could go with a pro-citizen, big-government kind of leader.

For decades, maybe even centuries, most economists have understood that money is best (most efficiently) spent by companies. After all, they have limited funds and a bottom line to protect. Governments, on the other hand, have the ability to continuously raise their revenues and have no profit margins to worry about. So why would they care about efficiency? It isn’t their money.

That is exactly why the Government Accountability Office just announced more than 40% of all federal credit card spending during a 15-month investigation period was unauthorized of fraudulent. Your hard-earned tax dollars were spent on things like custom suits, massages (no comments Mr. Spitzer), and even lingerie.

In all, it adds up to $14 billion of our money flushed down a golden toilet.

This figure tells us that nearly 40% of our tax dollars are being wasted. How many houses would not be in foreclosure, or how many people would be able to pay their health insurance bills, or how many kids could go to college if that money stayed in the hands of the folks that earned it?

If we want the American economy to rebound and be successful, we cannot raise more trade barriers. We need to eliminate them and let natural economic laws work. Even more importantly, we need to limit the size of our government and keep the nation’s money in the hands that earned it.

So Ms. Pelosi, I hope you kept the receipts for that lingerie. We want our money back.