Ignoring the Biggest Mistake

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Byline: Holger Schmieding; Schmieding is European economist at Bank of America Securities Merrill Lynch.

The main threat to commerce is not old-fashioned tariffs or subsidies. It's that stricken banks are bringing money home.

Eighty years ago, three major policy mistakes turned the stock-market crash of 1929 into the Great Depression of the 1930s: a tight monetary policy, a restrictive fiscal stance and a wave of protectionism that paralyzed the world's greatest wealth-creation machine, the exchange of goods and capital across national borders. This time, central bankers and politicians around the world are deftly avoiding the first two mistakes.

However, there is a rising risk that a collapse in cross-border commerce could critically deepen and prolong the downturn. Countries are not shutting their …