Hammering economic protectionism

Simon J. Evenett

Avoiding a re-run of the 1930s is not inevitable. Actions not just words count in perilous times such as these. Only together can progressive leaders prevent the protectionism, mass unemployment and misery, and ultimately the threat to peace that the 1930s became. Leaders must take these five steps immediately:

Follow Keynes, not Smoot-Hawley
Use intelligent Keynesianism to design fiscal stimulus packages that revive demand for goods and services. Generous treatment of the unemployed and displaced, who tend to spend proportionally more of their income than most, helps reconcile economic and social imperatives. Open economies were cushioned on the way down. After all, the more open an economy was before the crisis the more demand reductions were felt by foreign suppliers. Restricting imports now will invite retaliation and harm export industries that tend to pay higher salaries.

Put a global surveillance mechanism in place to hammer protectionist measures
February 2009 was a bad month for cynics who think that politicians always cave into protectionism. Visceral condemnation of proposed US Buy American legislation by the European Commission, China, Japan, and many of America’s trading partners resulted in President Obama rejecting these proposals and them being substantially watered down in the US Senate. In the internet age only the deluded believe they can practice protectionism in secret. Assemble a team of independent, balanced experts to track protectionism and issue early warnings.

Commit to a temporary, legally-binding standstill on trade restrictions at the WTO
Current trade agreements are not perfect, and there are plenty of trade-distorting loopholes that can be exploited. For every major type of trade policy, including those relating to agriculture, manufactures, government procurement, and dumping, progressive leaders should commit not to raise trade barriers for the duration of the global economic downturn. This temporary commitment must be legally-binding and codified at the WTO. These steps would put teeth into previous G20, G8, and Asia-Pacific Economic Cooperation declarations and build private sector confidence.

Don’t abandon developing countries during the economic crisis
Government budgets may be under pressure but the temptation to renege on aid commitments should be resisted. Further destabilising poorer countries when their economies are already in crisis, all for the sake of saving amounts of money that pale in comparison to the average Wall street bailout, is short-sighted foreign and economic policy. It will encourage further migration to the west and harm diplomatic relations for years to come. The damage done to the Millennium Development Goals could be incalculable.

Lay the foundations for a worldwide export-led recovery
Cutting red tape and supporting transport infrastructure improvements in developing and industrialised countries help clear the arteries of the world economy. Ports and airports are some of the worst bottlenecks for commerce, as anyone who has run a supply chain will tell you. Use the momentum of the crisis to overcome self-interested defenses of the status quo and to accelerate the completion of the WTO’s current negotiations on trade facilitation.

Surely any progressive leader can ascribe to this combination of intelligent Keynesianism, mutual support for poorer nations, and a commitment to open borders?

Simon J. Evenett is professor of international trade and economic development at the University of St. Gallen, and co-director of the CEPR Programme in International Trade and Regional Economics