World trade is grinding to a halt. And that’s a huge worry, because post-war economic progress in the world economy has been built on the sensible premise that free trade between nations improves overall efficiency and spreads wealth.
Individual countries have already reported sharp declines in their exports and imports since September. India has not been an exception. The US commerce department said this week that the combined imports and exports by the world’s largest economy have dropped 18% between July and November. Other major economies—Japan, Germany and China, for example —have also reported dismal trade numbers.
The World Bank says that global trade is likely to decline this year for the first time since 1982.
Trade inertia is an underestimated risk to the world economy. At the micro level, a drop in the movements of widgets and commodities across national borders will create huge pressures on the intricate web of global supply chains that companies have built in recent decades. At the macro level, recessions and slowdowns could lead to trade wars as countries try to protect domestic manufacturers from imports.
The knee-jerk reaction is likely to be protectionism to mollify domestic lobbies. And keeping the flag of free trade fluttering is going to be one of the big challenges that incoming US President Barack Obama is likely to face in his early months in power.
It does not help that his record on this front is far from reassuring. Obama on the campaign trail has not come across as a firm believer in free trade, unlike his immediate predecessors Bill Clinton and George Bush.
Given these circumstances, it is critical that the global trade talks in the Doha Round of negotiations of the World Trade Organization should be given a much-needed leg-up in 2009. The leaders of the so-called G-20 nations had made all the right noises about the need to avoid protectionism, when they met in Washington, DC in November to discuss the encircling gloom. Their commitment will be tested very soon.
We hope those sensible words in 2008 are followed by sensible actions in 2009.
Will 2009 be marred by the threat of protectionism? Tell us at email@example.com