Thursday, January 29, 2009

Will free trade or protectionism prevail?

At the World Economic Forum that opened this week in Davos, Switzerland, Professor Nouriel Roubini, eminent New York University economist and author of the book, “Bailouts or Bail-ins?," and Ian Bremmer, president of the Eurasia Group, were interviewed by the Reuters news staff. Among the subjects were free trade and protectionism. Here are brief excerpts:

Q - Is there likely to be a trend toward greater protectionism and nationalist economic policies around the world in 2009? What will be the implications for the global economy?

Roubini - Protectionist pressure will become more severe if the global economic slump is more protracted and deep. ... Protectionist tariff actions have already started to emerge in places such as Russia and India and they may spread further. Trade-distorting subsidies are more likely than tariffs (see the rescue of Big Auto in the US). ... The new U.S. administration is dominated by pro-globalization figures (such as Tim Geithner and Larry Summers), but Obama's choice for Labor Secretary and U.S. Trade Representative, and the ongoing pressures by trade unions, counter-balance these free-trade leaning forces.

Bremmer - There will be a heavy nationalist influence on economic policies globally this year because the overwhelming priority among political players will be to stimulate economies, growth and job creation. These are "national" projects. Governments will appeal to national pride to maintain domestic support. ... We will see austerity programs all over the world this year. Austerity breeds populism, but populism can easily breed protectionism in any country with significant exposure to international markets. If one country finds political advantage in throwing up a wall to protect a vulnerable industry or economic sector, other governments will have a political incentive and justification to do the same. The West has preached the virtues of free trade and free markets for years. Now, many in the developing world can cite massive state spending by Americans and Europeans to justify kick-starting their own economies, including by protectionist measures.

In another Reuters article, "Davos Policymakers sound alarm over protectionism" (1/29/09), Jonathan Lynn cites the observations of several Davos participants on the subject of free trade:

India's trade minister, Kamal Nath, warned at the World Economic Forum that the global economic crisis could fuel protectionism to safeguard national industries and jobs. He told Reuters that India saw growing signs of protectionism and would respond with its own measures if its exporters were threatened. "We do fear this because one must recognise that at the heart of globalisation lies global competitiveness, and if governments are going to protect their non-competitive production facilities it's not going to be fair trade," he said. "If there are protectionist measures India will be compelled to also take commensurate measures against those countries which will be good for no one." ...

India has raised tariffs on steel to protect local producers, a measure trade experts say was aimed at China, which India does not regard as a market economy. Chinese Premier Wen Jiabao warned in a keynote speech at the opening of the Davos meeting on Wednesday that protectionism would only deepen and prolong the crisis.

Pascal Lamy, director-general of the World Trade Organisation (WTO), said it was to be expected that the crisis would generate protectionist pressures. "We all know by experience that erecting obstacles to trade would make things worse. And the first thing you have to do when you have to cope with a crisis like this is don't shoot in your own foot," he told reporters. "It's pretty clear that there is a risk and that we have to be very vigilant." ... The WTO has started to monitor trade measures taken by its 153 members for signs of protectionism. A first report this week will be updated in time for a meeting in London in April of the G20 group of rich and emerging nations, Lamy said. "At this stage there's nothing dramatic. There are spots here and there which have appeared. Not real significant macroeconomic importance, but there is an area which deserves a lot of vigilance which is subsidies," he said. ...

On Wednesday, the U.S. House of Representatives approved a "Buy America" provision requiring public works projects funded by an $825 billion stimulus package to use only U.S.-made iron and steel. European steelmakers have challenged the move. The U.S. Chamber of Commerce, which opposed the provision, believes it will be of only limited impact. "An expansion of the current 'Buy American' rules would be a dumb idea, it would be a bad idea because the natural reaction would be for our trade partners to react in kind," Thomas J. Donohue, president and chief executive of the Chamber, which represents more than 3 million U.S. businesses, told Reuters. "The more difficult it gets the more we have to keep saying 'no isolationism, no protectionism.' We need to keep markets open, we need to keep our ability to sell stuff working and to do that we have to keep our own markets open," Donohue said.

See also: Protect first, free trade be damned


Anonymous said...

"The more difficult it gets the more we have to keep saying 'no isolationism, no protectionism.' We need to keep markets open, we need to keep our ability to sell stuff working and to do that we have to keep our own markets open,"

His greed and fear only partially mask his low intelligence/lack of awareness. And he says "isolationism" as though such were a bad thing. Poor fool.

John Sobieski said...

I have never bought into the free trade propaganda. Look how many jobs in manufacturing we have lost, wiped out by low cost countries who subsidize their industries. To me, it was more one way trade with the US on the short end of the stick. Beware the globalists!