Trade and Mutually Assured Destruction

February 24, 2009

Former Mexican President Ernesto Zedillo has an original view on protectionism.

 

Instead of promising not to raise barriers to trade (and quietly ignoring their pledges), leaders should hit back hard with all the legal means available at any country trying to use protectionism to shield itself from the crisis at the expense of others.

 

 

 

 

Zedillo, who steered Mexico through the 1994/95 “Tequila crisis” and the 1997/98 Asian crisis, compares this to the doctrine of Mutually Assured Destruction that kept the nuclear peace during the Cold War.

 

Perversely, the threat of 1930s-style tit-for-tat trade retaliation could prevent countries from risking the policy in the first place, said Zedillo, who is now professor of international economics and politics at Yale University.

 

World Trade Organisation (WTO) rules give countries plenty of room to retaliate against unfair trade practices.

 

They include challenges in the WTO’s disputes system, raising tariffs that have been cut unilaterally back to their agreed ceilings, and withdrawing preferential treatment for developing countries.

 

That threat would alarm exporters, who would provide a counterweight to protectionist lobbies, Zedillo  said in a lecture at Geneva’s Graduate Institute of International and Development Studies.

 

The only thing that could make politicians think twice about protectionism is the possibility that another political constituency will be hurt. Leaders toying with the idea of going protectionist should be aware that others can hurt their export sectors.

 

 

“Let’s use whatever tools the system has in order to make clear to whoever decides to ride the protectionist wagon that there will be no such thing as a free ride, but rather there will be blood – let the WTO’s teeth bite!”

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Protection is what our government gets paid for.

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