Published: Friday, Sep 25, 2009
September 25, 2009
As the Group of Twenty (G20) leaders gather in Pittsburg for the summit that comes almost a year after the collapse of the iconic capitalist enterprise, Lehman Brothers, the spectre of protectionism hangs heavy no less on the shoulders of the summit's host, US President Barack Obama. At the April London summit of the same group, he had exhorted the world's leaders to shun the path of protectionism in order not to stifle the global economic recovery for which they had in some coordinated manner put together perhaps the costliest stimulus plan the world has ever seen. To "name and shame" perpetrators was the approach they all endorsed. Alas, a sense of seemliness will prevent Mr. Obama, the host, to repeat that exhortation this time around. Applying his loquacious style, he might still make some muffled pleas for trade openness to those assembled, but its impact is likely to be feeble, at best.
For Mr. Obama seems to have strayed from the very path he himself had ordained and enjoined others to follow. Taking advantage of a US Law, passed by Congress in 2000, this month he imposed a punitive tariff of 35 per cent on low-price Chinese tires. President's discretion was applied rather than taking recourse to WTO-compliant "anti-dumping" duties, arguably because there was no prima facie evidence of China selling the product in the USA below its own cost of manufacturing. The relevant Law - directed towards Chinese imports and enacted on the eve of Chinese membership of World Trade Organisation (WTO) -- included a provision for "relief from market disruption" on the ground that the surge in import of low-cost and low-end Chinese tires (imports were up 215 per cent) would cause or threaten to cause "significant" injury to the US tyre industry. Critiques have already expressed doubt as to whether that was the case, or the measure comes as a political sop to Mr. Obama's trade union patrons at a time when support for his health-care reform appears sagging.
Be that as it may, Mr. Obama is in good company. Following the April summit, the Geneva-based WTO, which was given the task of monitoring trade-restrictive measures by member countries, has just released a report that cited "continued slippage toward more trade restricting and distorting policies". Between April and end August, it finds G-20 countries having instituted 91 potentially protectionist measures, 15 of them by the USA. Another trade watchdog group, Global trade Alert, separately finds at least 121 protectionist measures implemented by G-20 members since November 2008. In April at London, the G-20 leaders had renewed the pledge that was made in November (at Washington DC) to " refrain from raising new barriers to investment or to trade in goods and services, or imposing new export restrictions". Though the pledge was to last until end 2010, subsequent events show flagrant violations with alarming frequency, across the board.
What is worse, reports reveal that still more protectionist measures are in the pipeline over the next six months. What could be the reason for protectionism to raise its ugly head when leaders are talking coordination for a sustained recovery, and when the lessons of the Great Depression are so vivid in their minds? Even after they recognize the futility of adopting unilateral trade restrictive measures, it turns out that internal pressures appear to get stronger as the recession protracts, and unemployment figures rise. Battered industries, and vanishing jobs need to be resuscitated. When national self-interest becomes the driver of economic survival, protectionism has a field day. That seems to be the historical experience - with adverse outcomes for the long-term, nationally and globally.
It will take strong and committed leadership to stem the tide of rising protectionism. Not mere words of wisdom. Unless that is forthcoming, and in Pittsburg, the sustained global economic recovery that is the avowed goal of all G-20 leaders will remain a distant dream for the global community. Rising protectionism and shrinking trade are enough to stifle any global recovery.
To be sure, protectionism is unlikely to be the primary item on the agenda for which a broad consensus already exists. Clearly, there are more pressing issues for the leaders to focus on. Whereas the two past summits grappled with the formidable challenge of averting a depression, and lifting economiesout of a protracted recession through coordinated economic stimulus packages, this time the leaders might have reason to heave a sigh of relief in light of the fact that global economies are by and large showing signs that the worst is over and chances of a recovery are looking better, though not with potential pitfalls along the way. More pressing is the need for long-term measures to prevent the kind of financial meltdown the world had experienced since last September.
A burning issue no doubt will be the need for a sustained strategy for restoring a semblance of economic balance between "high savers" and "high spenders" of this world - an economic imbalance which, according to leading economists, lay at the root of the present crisis. Economies like China and Germany cannot continue to accumulate current account surpluses at the expense of high-spending USA, without a crisis on the horizon. The Chinese will be required to spend more - on domestic as well as foreign goods and services. US consumers will have to curb their own propensity to borrow and spend, so that the economy depends less on China or Japan to finance its trade deficit by accumulating US Treasury bills. We now know that while the US housing collapse triggered the current crisis, these fundamental savings and spending imbalances across the globe actually fuelled the housing bubble in the first place, as China's savings glut poured over into US markets through easy credit policies that were eventually unsustainable.
The one issue that will have to be discussed is the matter of cross-border financial regulation and oversight. Any consensus is yet to emerge although the European Union (EU) members seem to have come up with a potential pan-European regulatory mechanism which might soon see the light of day. No such idea is afloat amongst the BRICs -- meaning Brazil, Russia, India & China -- or USA, though China is keen on seeing a stronger International Monetary Fund (IMF) with built-in mechanisms for forecasting and preventing financial crises in the future.
The one item that might bite the dust at this summit is possibly the idea of a new reserve currency - singularly promoted by China. But the leading members of G-20 have shown scant interest in any process that could potentially dislodge the mighty dollar from its high pedestal. The days of the greenback are not over just yet.
(Dr. Zaidi Sattar is Chairman, Policy Research Institute of Bangladesh. He can be reached at e-mail: email@example.com)
Last Updated on Thursday, 06 January 2011 05:49