Washington: After repeated pledges by world leaders to avoid erecting trade barriers, protectionism is on the march, provoking nasty trade disputes and undermining efforts to plot a coordinated response to the deepest global economic downturn since World War II.
Fighting slowdown: Delegates at the G-20 finance ministers’ meet in England on 14 March. Developing nations such as Brazil, Russia, India and China said protectionism was ‘an increasingly real threat’. Simon Dawson / Bloomberg
From a looming battle with China over tariffs on carbon-intensive goods to a spat over Mexican trucks using American roads, barriers are going up around the world. As the recession’s grip tightens, these pressures are likely to intensify, several experts said.
The surge in protectionism is casting a shadow over an economic summit meeting of world leaders scheduled for London on 2 April. At the last such gathering, in Washington in November, former US president George W. Bush persuaded the Group of 20 (G-20) nations to commit to protecting free trade—whatever the pressures caused by faltering economies and lost jobs.
“No sooner was the G-20 statement issued than it was breached,” said Daniel M. Price, a former Bush administration official who helped negotiate the agreement.
Far from heeding their pledge not to erect new barriers for 12 months, many countries have raised import duties or passed stimulus measures packed with trade-distorting subsidies. The World Bank, in a report last week, said that since the Washington meeting, 17 members of the G-20 had adopted 47 measures aimed at restricting trade.
Russia has raised tariffs on used cars. China has tightened import standards on food, banning Irish pork, among other things. India has barred Chinese toys. Argentina has tightened licensing requirements on auto parts, textiles and leather goods. And a dozen countries, from the US to Australia, are subsidizing embattled auto makers or car dealers.
The most vivid example of that policy is the “Buy America” provision in the stimulus package, which was intended to ensure that only the US manufacturers benefited from public spending projects. President Barack Obama’s administration persuaded Congress to water it down, and Obama has taken up Bush’s warnings about the dangers of protectionism.
But pressures are building on other fronts. Last week, the energy secretary, Steven Chu, said he favoured tariffs on Chinese goods if China did not sign on to mandatory reductions in greenhouse gas emissions—underscoring how the “green economy” could be the next trade battleground. And Obama signed a $40 billion spending bill that scrapped a programme enabling Mexican trucks to haul cargo over long distances on the US roads. Mexico retaliated by imposing duties on $2.4 billion worth of the US goods—everything from pencils to toilet paper. The trucking dispute has its roots in the North American Free Trade Agreement, which guaranteed Mexico, Canada and the US access to one another’s highways for cargo transport by 2000.
Even without protectionism, the global downturn is likely to result in the largest annual decline in world trade in 80 years, according to the World Bank. “It’s very easy for this to spin out of control and move to trade wars that could be quite devastating,” said Richard Newfarmer, who wrote the report and is the bank’s special representative to the World Trade Organization (WTO).
The World Bank president, Robert B. Zoellick, warned that 2009 could be a “very dangerous” year, as leaders faced rising calls for protection from economically insecure populations. He called on WTO to monitor protectionist actions and publicize them. But not all the measures violate the body’s laws.
The stimulus plans that the US is pushing Europe to adopt can also distort trade, depending on how much they rely on subsidies. In November, the G-20 agreed to “refrain from raising new barriers to investment or to trade in goods and services”, regardless of whether the measures complied with trade laws.
©2009 / THE NEW YORK TIMES