Trade Barriers Toughen With Global Slump
Monday, December 22, 2008
Only a few weeks after world leaders vowed at a Washington summit to reject trade protectionism and adhere to free-market principles as they combat the global financial crisis, a host of nations are already breaking that promise.
Moving to shield battered domestic manufacturers from foreign imports, Indonesia is slapping restrictions on at least 500 products this month, demanding special licenses and new fees on imports. Russia is hiking tariffs on imported cars, poultry and pork. France is launching a state fund to protect French companies from foreign takeovers. Officials in Argentina and Brazil are seeking to raise tariffs on products from imported wine and textiles to leather goods and peaches, according to the World Trade Organization.
The list of countries making access to their markets harder potentially includes the United States, where critics are calling the White House's $17.4 billion bailout of the U.S. auto industry an unfair government subsidy that would put foreign competitors at a disadvantage.
Though still relatively narrow in scope, the moves, observers warn, in the coming months may grow into a broader wave of protectionism. That could worsen the global financial crisis by further choking world trade, which is already facing its first decline since 1982 as the world economy sharply slows and demand dries up.
In hard times, analysts say, nations are more inclined to take steps that inhibit trade, often with dire consequences. Trade restrictions imposed by countries trying to protect domestic industries in the 1930s, for instance, escalated into a global trade war that deepened and prolonged the Great Depression.
"Exporting firms tend to be innovative, dynamic and capable of generating good job growth," said Eswar S. Prasad, a professor of trade policy at Cornell University and senior fellow at the Brookings Institution in Washington. "If trade restrictions caused by trade wars shut them down, their suppliers shut down, job losses get worse, and you can quickly have a spiraling downward effect on the entire economy."
To be sure, most of the measures taken to date appear to be within the limits of current international trade treaties, which grant countries some room to raise tariffs and contain loopholes that can be exploited to protect domestic industries.
But the general trend toward protectionism could undermine what has been the steady march of free trade during the era of globalization, with export-dependent countries such as China standing to lose the most.
Seeking to avoid such a reversal, leaders from 20 major and emerging economies gathered in Washington on Nov. 15 for a global economic summit, issuing a pledge to refrain from protectionist measures for at least 12 months. They also vowed to reach a breakthrough this year on a stalled global trade deal that would bring down tariffs on a wide variety of exports, injecting as much as $100 billion into the global economy.
But nations have failed to comply with both of those promises, with many not waiting for the ink to dry on the summit agreement before reversing course.
For example, on Nov. 18 -- just three days after the summit -- India levied a new 20 percent duty on imports of some soybean oils to protect domestic farmers as international prices have dropped during the global economic slump. Experts in India think the government may soon raise taxes on other types of foreign-made cooking oils.
Increasingly, nations are rolling out support for battered domestic industries that critics are decrying as trade-distorting government subsidies. The United States, under fire for bailing out General Motors and Chrysler, on Friday announced that it was taking legal action against China at the WTO for allegedly offering unfair support of its export industry -- including the award of cash grants, rebates and preferential loans to exporters.