News

New bilateral disputes over trade threaten to undermine the Doha Round... Again

Carl Mortishead in the Times argues that Barack Obama's tyre tariff handout to the Steelworkers Union and the looming backlash from Beijing pales in comparison to the tension over trade between India and China. Indian toy, vitamin and dairy producers argue that they cannot compete with Chinese imports (e.g. cheaper prices for Indian consumers) and used all sorts of spurious arguments to get the Indian government to introduce barriers to trade which exclude these cost-cutting rivals from the market. The Chinese are justifiably furious about these "invisible trade barriers". $52 billion worth of trade between the two countries in 2008 has already fallen by a third this year because of the recession -- but also because of the political response to it.

This is just one of the bilateral flaps between major economies that is threatening to yet again scupper positive negotiation to the Doha Development Round at the World Trade Organisation, just as WTO officials were claiming that new breakthroughs had been made.

130 new protectionist measures in the pipeline

According to Global Trade Alert, 130 protectionist measures – from increased tariffs to export subsidies - have been planned and are due to be implemented by governments. As reported in the WSJ, they believe “the US-China trade skirmish is just the tip of a coming protectionist iceberg”.

China, tires & protectionism

Some great blog posts right now about the US tax on Chinese tires, the hypocrisy of the Obama administration, and the harm caused to consumers by this decision.

WSJ: "A Protectionist President"

The Wall Street Journal has published an excellent summary of the history of trade (and protectionism) in the US since 1930, when the Smoot Hawley tariff was passed:

Dan Hannan: F2T argument "irrefutable"

In his blog for the UK's Daily Telegraph, MEP Daniel Hannan has praised the Freedom to Trade campaign and the "irrefutable" benefits of removing trade barriers.

Referring to Alec van Gelder's blog post, Hannan claims that most government interventions have simply worsened the global recession - from bailouts to nationalisations, and now barriers to trade.

"Despite all the G20 blah blah about working together, every major economy has become more closed over the past 12 months" he laments.

Obama tyre tariffs reject growth, progress and credibility for vested interests

President Obama's decision to implement a 35 per cent tariff on Chinese tyres is predictably being branded as all sorts of lovely things--especially by the infinitesimally small number of workers who might benefit in the short term from the tariff. Yet the reality is that Obama's first deliberate ruling on trade as U.S. President sets a terrible precedent for American trade policy over the next four years--and invites a wave of sweeping retaliatory trade barriers against American exports in the days, weeks, months, and even years to follow. These retaliations are not just a threat for the distant future: the Chinese have already promised action against US exports, just hours after Obama's announcement.

The message for domestic policy in the United States could not be more backward either: Obama has just announced to the American public that vested interests and lobbyists will be valued above consumers. The full implications of Obama's decision--why this specific decision was so important, the importance of open trade in tires, the implications of tariffs on consumer safety--are expertly outlined in this excellent briefing paper, timed to release on the day of Obama's tyre tariff ruling, by Daniel Ikenson at the Cato Institute.

"No Longer Us versus Them - Trade Policy for the 21st Century"

Global economic integration has enabled enterprises to flourish on scales unimaginable just a generation ago. The re-imposition of barriers would be a huge mistake and should be eschewed. Instead, trade and investment policy should be brought up to speed with 21st century commercial reality. To nurture the promise of our highly integrated global economy, governments should commit to policies that reduce frictions in the flow of goods, services, investment, and human capital. Such policies would make sense under normal circumstances but are even more important during the tough times we face.

That is why “Buy American” and the many other “protectionist” measures introduced in the wake of the financial crisis are counterproductive. As with similar measures introduced in previous recessions, they will deepen and prolong the current crisis. Governments that indulge in such protectionism, restricting the flow of trade, investment, and human capital will find their economies – and opportunities for their citizens – falling behind those countries where policies are more amenable to the realities and opportunities of today’s globalised world economy.

New F2T Study has Lesson For G20: Ending Protectionism Is the Best Stimulus

Daniel Ikenson, author of "No Longer Us versus Them - Trade Policy For the 21st Century", released today by the Freedom to Trade Coalition, calls on the G20 to stick to their pledge not to introduce protectionist policies:

"In one breath, governments renounce protectionism; in another they introduce such policies. This shows a profound lack of understanding of the new reality of global commerce. Today’s competitors defy national identification. A product might be designed by teams in the USA and India, have components produced in Thailand, Poland and Mexico, while final assembly takes place in China, from where it is distributed to millions of consumers around the world. As a result, restrictions intended to benefit one domestic constituency harm all other collaborating partners in that supply chain – and hurt other domestic producers too."

D-Day for Obama's Trade Policy

Presidential Candidate Barack Obama campaigned against imports from China and "for" American workers. Yet President Barack Obama has maintained that protectionism in any form would be a mistake. Even though he has already broken that promise, today marks a critical decision that determines American trade policy with one of its most important trade partners. Which Obama will emerge?

"Keynes at Home, Smith Abroad" -- Squaring a Circle

Razeen Sally and Fredrik Erixon have an excellent op-ed in the Wall Street Journal where they argue that the global economy has not (yet) been wrecked by a turn to the policies of the 1930s, but that disaster is on the way because of a return to the slightly different protectionist policies of the 1970s:

"In the '70s, governments increased domestic interventions—fiscal-stimulus packages, subsidies to certain sectors, labor-market and capital-market restrictions—in response to oil-price hikes and other external shocks. This spilled over into protectionism, mainly through nontariff barriers such as discriminatory subsidies, "buy local" government-procurement initiatives, "voluntary export restraints" and "orderly market arrangements."