If the natural political response by individuals to a recession is a rise in political extremism, then there is a similar trend in economics – economic nationalism, more commonly known as protectionism.

Unfortunately, it seems we have a case of history repeating itself which is no less worrying and dangerous. Following the Wall Street crash in 1929 an ill-conceived tariff law known as the Smoot–Hawley Tariff Act was introduced in the US with the intention of protecting US farmers and industries. It led to duties of more than 60 per cent being slapped on 3,200 imported products. The devastating consequences of this were that, by 1933, imports into the US fell from $4.4 billion to $1.3 billion while exports decreased 69 per cent over the same period.

The US tariff law ignited a domino effect of retaliation and counter-retaliation from other countries. It led to a collapse of international trade, decimated growth and drove up unemployment around the industrial world. It turned the Great Crash into the Great Depression.

Now we must be careful to avoid a repeat of such “beggar thy neighbour” policies that could repeat the damage of the 1930s. The most immediate challenge we face is China’s reluctance, for reasons of its own, to shift the value of its currency from the lower end of the scale. China accumulated about half its annual gross domestic product in currency reserves. Reserves are other countries’ trade deficits and, so, they become the cause of many economic ills around the world.

But China is not the only culprit. The US policy of further quantitative easing, with the US Federal Reserve taking the decision to pump an additional $600 billion into the US economy, amounts to a similar action as that of China. It weakens the US dollar. The fact that it has been done partly in response to China’s refusal to devalue its currency threatens to cause a currency and trade war.

Meanwhile, the trade imbalances, both at a global and EU level, between countries with healthy export surpluses but low import levels and vice versa, are growing. Germany is storming out of the recession through its exports but, yet, its wage restraint and refusal to increase domestic consumption and imports means other countries, especially southern European ones, are finding it difficult to export their way back to growth.

So, to my mind, there is no doubt we are faced with a growth in economic nationalism. Despite the fact that the economic meltdown that seemed possible in 2008 and 2009 seems to have been averted, we are still not out of the woods. This situation is very dangerous for Europe, the US and a number of emerging economies.

The world should not react to China by refusing to take its goods. Similarly, America’s attempts to get out of recession by quantitative easing are cause for concern but can be worked out.

So what we need is multilateral action to help each other back to consistent economic growth and better co-ordination of international trade. We have the perfect opportunity – the G20, perhaps though the IMF, needs to hammer out a set of rules that limits the accumulation of reserve assets and the US needs an officially approved extended adjustment period. While it is, of course, impossible to ignore the domestic pressures felt by leaders, international diplomacy, alongside the sound economic argument that protectionism does not work, is needed to prevent restrictions on trade and a “beggar thy neighbour” approach to economic survival.

While we have seemingly avoided economic catastrophe, we still face a number of problems. But let us learn from history and avoid making the mistakes of the 1930s. As the Great Depression showed, in a trade war everybody gets poorer.

Prof. Scicluna is a Labour member of the European Parliament.