Your Depressing Trade Post Of The Day

by Pejman Yousefzadeh on March 25, 2009

Behold. Key passage:

. . . protectionism is rising and risks making an already severe slump even more catastrophic. When leaders of the G20 countries meet in London on April 2nd they are likely to reiterate a pledge made in November to avoid the mistakes of the 1930s. They are expected to promise to restrain themselves from raising the trade barriers that have been whittled away over decades of tortuous multilateral negotiations. But almost none have kept the promise they made at that last meeting. The World Bank has counted 47 trade-restricting steps taken by 17 of the G20 members. Tariffs have risen in several developing countries, including India, Russia and Ecuador. European ones and America have resorted increasingly to subsidies for failing industries, with implicit pressure on firms to create jobs “at home”, possibly at the cost of shutting down more efficient facilities abroad.

An all-out 1930s-style tariff war still seems unlikely, however, partly because existing WTO agreements limit (even if they do not eliminate) the scope for tariff increases. Some also argue that the globalisation of the supply chain has made traditional protectionism, in the form of wholesale tariff increases, more difficult to pull off than in a world where most goods were made with domestic, rather than imported, inputs. This is because taxing imports can end up hurting a country’s own producers who rely on imported inputs.

So far, those supply chains seem to be intact, partly helped by the sharp drop in the price of oil. If they survive the crisis, they will help an eventual synchronised recovery in trade. But a further rise in protectionism risks choking off what should be an engine of recovery for the world economy.

About the only thing that is missing from this analysis is the degree to which the Obama Administration has sought to set trade back by bashing NAFTA and allowing for violations of it.

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