Trade Barriers Could Threaten Global Economy

By Anthony Faiola
Washington Post Staff Writer
Wednesday, March 18, 2009

At least 17 of the 20 major nations that vowed at a November summit to avoid protectionist steps that could spark a global trade war have violated that promise, with countries from Russia to the United States to China enacting measures aimed at limiting the flow of imported goods, according to a World Bank report unveiled yesterday.

The report underscores a "worrying" trend toward protectionism as countries rush to shield their ailing domestic industries during the global economic crisis. It comes one day after Mexico vowed to slap new restrictions on 90 U.S. products. That action is being taken in retaliation against Washington for canceling a program that allowed Mexican truck drivers the right to transport goods across the United States, illustrating the tit-for-tat responses that experts fear could grow in coming months.

The report comes ahead of an April 2 summit in London in which the heads of state from those 20 industrialized and developing economies will seek to shape a coordinated response to the economic crisis. Their inability to keep their November promises is another indication of how difficult it will be to implement any agreement reached next month on a global scale.

Protectionist measures may also sharply worsen the collapse of global trade, which the World Bank said is facing its steepest decline in 80 years as global demand dries up.

"Leaders must not heed the siren-song of protectionist fixes, whether for trade, stimulus packages or bailouts," said World Bank Group President Robert B. Zoellick. Noting that protectionism is widely viewed as having deepened and prolonged the Great Depression, he added "economic isolationism can lead to a negative spiral of events such as those we saw in the 1930s, which made a bad situation much, much worse."

The Bank said that, since last November, a host of nations has imposed a total of 47 measures that restrict trade at the expense of other countries. The most obvious trade restrictions -- raising tariffs, or taxes on imports -- represent only about a third of all measures taken. Some countries are taking a direct approach. Ecuador, for instance, has raised tariffs on more than 600 items. But most are taking more creative steps that fall into the gray area of what is considered legal under international trade law.

Argentina, for example, has put new licensing requirements on auto parts, textiles, televisions, toys, shoes and leather goods that create a new layer of bureaucracy for overseas exporters. The European Union announced new export subsidies on butter, cheese and milk powder. China and India have increased the tax rebates for domestic exporters, seen by critics as providing a stealth subsidy that makes their products unfairly cheaper abroad.

Some measures, the report concludes, may distort global production for products like cars and trucks. National bailouts and subsidies proposed worldwide for the auto industry, the World Bank said, now total some $48 billion globally, with aid pouring out from governments including the United States, France, Canada, Germany, Britain, China, Argentina and Brazil. That could prevent the natural readjustment of the industry, which many experts say is greatly overcapacity, allowing automakers to continue to produce more cars than consumers need.

The report noted that current trade laws, however, make it tougher for nations to take the more sweeping measures that triggered the trade wars of the 1930s. The era of globalization has made countries more interdependent than ever before, with supply chains for a single car made in China or a plane made in the United States now often relying on components manufactured in many other nations. That has led to a new measure of caution when putting up trade barriers. Additionally, global treaties have made it more difficult to enact draconian barriers.

Yet that does not mean nations are not finding ways to engage in what critics call protectionist policies. Some are pointing to provisions in the $410 billion spending bill signed by President Obama last week, which ended a pilot program allowing Mexican truckers to transport goods throughout the United States. The program had long been a target of U.S. unions, which have decried the North American Free Trade Agreement as robbing Americans of jobs, and the move to end the program was seen by critics as part of a trend in the U.S. Congress toward curbing years of open U.S. trade policy.

The fear, critics contend, is that actions like these could touch off countermeasures that could lead to broader trade wars. "I think the one thing that people forget is that at the end of the day, our failure to comply with NAFTA is going to result in the loss of more jobs here in America," said Sean Spicer, a official at the Office of the U.S. Trade Representative during the Bush administration. "There are consequences for this kind of action, and they tend to build upon each other and provoke more responses. Is that really the kind of path we want to go down?"

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