Washington: Leaders of the world’s 20 top economies vowed to resist protectionism last November and again in April as they charted a joint strategy for confronting the worst global downturn in generations. As they meet again, they’ll get this progress report: Most of their economies are on the mend, and trade tensions and protectionism on the rise.
A US-China spat over Chinese tires and American chicken exports is just the latest example of how hard it has been to live up to those lofty fair-trade pledges. Nearly all 20 nations whose leaders meet next week in Pittsburgh have violated the no-protectionism pledges made earlier in Washington and London, according to reports from international monitoring groups.
As economies escape from the grips of recession, the pressure to work together appears to be lessening.
National self-interest is reasserting itself. That includes a desire to protect battered home industries from overseas competition as governments look toward the day when they can dial back stimulus measures such as extra government spending and low interest rates.
Also, participants are arguing over issues such as proposed limits on bankers’ compensation, how far to go with international financial regulation and alarming recession-fueled budget deficits, especially in the US.
Standing back from the cliff, the world leaders are shifting their focus.
“The words are starting to heat up a little bit. I think they’re starting to get a little frustrated that the urgency is being lost that crisis feel,” said Heather Conley, an assistant deputy secretary of state for Europe in the Bush administration and now a scholar at the Center for Strategic and International Studies.
Yet economists say pulling together is extremely important now to keep still-fragile recoveries from being derailed.
“It is very important that, as they unwind, they don’t do it in a haphazard fashion, that they think about it and work together so that everybody knows what everybody else is doing,” said Colin Bradford, a former World Bank economist who is now a scholar on global finance at the Brookings Institution.
“You’ve got a sequence of meetings going on, coordinated action instead of everybody shooting from the hip,” Bradford said.
In London in April, the leaders renewed a pledge they made in November to “refrain from raising new barriers to investment or to trade in goods and services (or) imposing new export restrictions.” They said that pledge was good until the end of 2010.
But the Geneva-based World Trade Organization issued a report this week that cited “continued slippage toward more trade restricting and distorting policies.” It listed 91 new potentially protectionist measures by G-20 members just between the April summit in London and the end of August, 15 of them by the United States.
Global Trade Alert, a trade watchdog group with ties to the World Bank, separately said more than 100 “blatantly discriminatory measures” are poised to be implemented by G-20 nations.
Trade warfare of the 1930s is widely blamed for prolonging and expanding the Great Depression.
President Barack Obama pledged to avoid “self-defeating protectionism” in continuing the effort to get the US and other major world economies back on their feet. Still, he told a Wall Street audience on Monday, “no trading system will work if we fail to enforce our trade agreements.”
Steps taken by the United States widely seen by other nations as protectionist include “Buy American” provisions in the Obama administration’s $787 billion stimulus package, restrictions keeping Mexican trucks off most US roads and provisions of auto bailouts requiring vehicles benefiting from the program to be built in the United States.
China has funneled its extensive stimulus spending to Chinese-only companies and enterprises. Russia plans sweeping tariff increases. Japan is taking steps that will further restrict food imports. And South Africa is changing its purchasing rules to favor domestic firms.
The US continues to press its claim that the European countries subsidize Airbus, winning a preliminary ruling from a WTO panel earlier this month. European countries have counter claimed that the Pentagon and NASA are effectively subsidizing rival aircraft manufacturer Boeing, with a ruling expected early next year.
Mike Froman, a White House adviser on international economics, said there’s no doubt that since the London meeting in April “the situation has changed dramatically. ... Then people thought we were perhaps on the edge of depression. And now I think we’re debating the pace of recovery.”
Froman said Obama would emphasize that governments should make plans for winding down stimulus measures but it is still “too early to execute on those exit strategies.”
Finance ministers of the 20 countries meeting in London two weeks pledged to maintain stimulus measures for now. But some European countries, particularly Germany, are not that keen to keep up high levels of spending.
Russia, meanwhile, plans to call for changes in international financial institutions such as the International Monetary Fund, which it considers Western-dominated. Such calls may be resisted by older economic powers.
Steven Schrage, who has held senior economic positions in the Bush administration and was an adviser to former Massachusetts Gov. Mitt Romney’s presidential campaign, said the biggest challenge facing the leaders may be to avoid “the mistakes of other downturns.”
In the 1930s, Schrage said, world powers like Britain and the United States “walked away from global responsibilities, and ultimately the situation got much worse.”