With the next G-20 summit only days away, President Obama and
other world leaders are once again promising to oppose
protectionism as a central tenet of their post-summit economic
agenda. Unfortunately, these promises are unlikely to be backed
with tangible policy action.
Bowing to protectionist pressures, the U.S., Europe, and many
other G-20 members have already reneged on similar pledges made at
an earlier meeting by introducing measures to restrict trade in the
face of the current economic crisis. G-20 nations, as well as other
countries, have variously introduced new tariffs, quotas,
government subsidies to businesses, domestic preference
requirements like the Buy American provisions of the U.S. stimulus
bill, and new regulatory barriers to trade.
While policymakers justify such protectionism as a means to
bolster their domestic economies, these measures are likely to have
just the opposite effect. They not only distort and reduce
international markets for goods and services, but they also have a
chilling effect on private investment at home--the very thing
needed to help economies get back on track and grow in the longer
term. Trade barriers also add to the economic burden facing
families trying to stretch incomes in uncertain times and may drive
import-using firms out of business altogether.
The U.S. and other members of the G-20 should commit to getting
multilateral trade talks back on track in the World Trade
Organization and should reverse the protectionist measures they
have adopted since they last met in 2008.
Reversing the Rising Tide of
Recent World Trade Organization (WTO) and World Bank studies
show the impact the global recession has had on trade and shed
light on the protectionist measures countries have adopted in
response to tougher economic times. The WTO reports that the volume
of international merchandise trade is likely to fall 9 percent in
2009, with exports from developed countries falling an average 10
percent and developing countries an average 2-3 percent.
This forecasted contraction in trade is largely being driven by
falling global demand, but it could be exacerbated by an increase
in the world's use of protectionist measures. Already, the World
Bank reports that 17 G-20 members and other countries have
implemented approximately 78 new protectionist measures since the
onset of the financial crisis; 47 of these actually followed the
G-20 pledge against protectionism in November 2008, a startling
example of governments saying one thing while doing another.
Such protectionist measures include:
- Increased use of anti-dumping polices;
- Greater use of new licensing and regulatory non-tariff barriers
- U.S. auto subsidies and more restrictive domestic preference
provisions for government procurement;
- EU export subsidies on cheese, butter, and milk powder;
- Higher Russian tariffs on a variety of products; and
- New Chinese bans on imports.
Not all of these measures violate international trade
commitments made by countries in the WTO or other regional and
bilateral trade agreements, but all restrict trade, distort
economic activity, and hurt worldwide growth.
With trade negotiations in the WTO stalled, the continued lack
of a new, comprehensive multilateral trade pact reduces countries'
discipline in keeping a rein on protectionism. Such discipline can
evaporate altogether during an economic slump.
Developing countries, many of which have substantially grown
their economies through trade in recent decades, are among those
hardest hit by the economic recession. The G-20 has tried to
address their concerns through proposals to maintain liquidity in
trade credit or the provision of economic aid. Yet trade finance
has value only if markets remain open to trade. For the countries
hardest hit by the economic downturn, no amount of aid will make up
for less access to developed country markets.
Based on their recent anti-protectionist pronouncements, the
leaders of the G-20 have the message about the benefits of trade
right--at least at the rhetorical level--but this rhetoric must be
backed with consistent and substantive policy action: Merely
promising to protect trade is not enough.
Trade Deal Needed
An ambitious trade deal would go far to stopping the trend of
increasing protectionism and reverse the contraction in trade that
is feeding today's global economic doldrums. A multilateral deal
would provide new market access and restore export-led growth that
could help compensate for lagging domestic demand. Next week, G-20
leaders have an opportunity to kick start the Doha Development
Round of trade talks by acting aggressively to remove the barriers
to trade they promised to avoid last November. The G-20 nations
should seize this opportunity by:
- Providing a hard timetable for the elimination of protectionist
measures introduced since the onset of the financial crisis;
- Adopting a blueprint for resuming global trade negotiations
within the WTO and bring the round to a rapid conclusion.
Embracing these and other trade-promoting measures would shore
up confidence in markets and help to speed the economic recovery
the U.S. and other G-20 leaders are seeking.
The Sooner the Better
With most countries' economic well-being linked through trade
and investment, the need for all nations to embrace trade and
investment liberalization has become even more critical to current
economic recovery efforts as well as future growth.
The sooner an agreement in the WTO can be reached, the faster
the world will begin recovering from today's economic downturn, and
the more rapidly the benefits of more open markets can accrue to
developed and developing countries alike.
Markheim is Jay Van Andel Senior Trade Policy Analyst in the
Center for International Trade and Economics at The Heritage