One of the major topics during this week’s G20 summit is the continued fight against global trade protectionism. Leaders vowed to limit protectionist actions and encourage trade to aid the global economic recovery. However, as a new European Commission report details, over 150 new trade restrictions were implemented throughout the world just last year and only 18 have been resolved.
The report highlights:
- “Brazil, Argentina, Russia and Ukraine stand out for having applied the heaviest tariff increases”
- “Brazil accounted for more than one-third of restrictions related to government procurement, followed by Argentina and India.”
- “The EU’s partners have also continued applying stimulus measures, in particular supporting exports”
- Some countries are protecting their domestic industries from foreign competition, Brazil and India are most notable.
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The world depends on continuity in trade. The global economic outlook, competition and consumer choice are shaped by trade flows and currency values. Competitive devaluations, for example, provide unfair advantages to exporters. For us, the promotion of U.S. exports must have a central place in the economic recovery package.
The national debate about economic recovery includes many lessons from the Great Depression. The clearest of these is to avoid the beggar thy neighbor policies and the protectionism of the Smoot Hawley tariffs that turned a market crash in the U.S. into a global Great Depression.
Global leaders give lip service to this conventional wisdom but there is a gap between communiqué language and on-the-ground practices. Indonesia and Russia have already begun to raise their protection of domestic industries – to the detriment of global trade. The Doha Round of international trade negotiations continues to be stalled – even though eight years of negotiations have placed great benefits within reach.
The U.S. experiences some difficulties in its global position, but around the world there is hope, expectation and willingness for a re-emergence of US leadership. There is growing concern among U.S. trading partners that the new leadership in the Congress and in the White House might introduce a new era of U.S. protectionism. Global markets are parsing any announcement for signs of what the Obama Administration will mean for them.
The world economies are intertwined. Any stimulus measure of one nation is likely to rapidly affect others, and trigger responses. Economic activity is highly concentrated among a few players. The United States, European Union, Japan, China and Canada account for more than 75 percent of the world’s economy. A good domestic stimulus should not become an international distortion. Subsidies paid to farmers in one country, for example, can affect dairy related industries around the world. Once introduced, protectionism can quickly become contagious and be emulated around the world.
The economic recovery plan is both an opportunity to send a signal to markets about what they can expect in terms of U.S. trade, and a chance to reassert U.S. leadership on a global stage. Discussions of U.S. economic improvements must include a focus on global recovery. Countries must be able and willing to buy each other’s goods – in an increasing quantity – if economies are to blossom.
Here are some recommendations :
- Countries need to make unambiguous, consistent and clear statements that industry bailout packages will not include protectionist measures. In the U.S., the newly appointed performance czar should assess economic stimulus measures by the U.S. and its trading partners for any inappropriate subsidies of exports or discrimination against imports.
- We need a renewed commitment to the World Trade Organization and its stalled Doha Round of trade negotiations. Rules need to be consistent and strong. The key players in world trade need to re-energize the negotiations by making major commitments and taking “early harvest” of potential agreements on a plurilateral basis. One first step could be the elimination of tariffs on environmental goods and services.
- The U.S. must lead its economic partners on the basis of trust and fair play – applied to trade and investment rules as well as to currency values. We’re in this together. Many policy objectives – be they health care, education, retirement – require a sound economy which depends on global collaboration on trade.