Global News Journal

Death-Defying Doha

Just as the World Trade Organisation is organizing an intensive push to complete the Doha round trade talks, the atmosphere among negotiators is as pessimistic as it ever has been. 

“Gloom” and “frustration” are just two of the more printable words circulating at the WTO’s headquarters by Lake Geneva.

Trade and Mutually Assured Destruction

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.

from MacroScope:

Winners in a trade war

Trade protectionism -- or at least the threat of it -- has raised it head as the global economy has declined, bringing with it all the historical fears about the Great Depression. Consider the flurry of concern about a "Buy American" clause in one of the U.S. stimulus bills.

It is traditionally assumed that widespread protectionism would most hurt the biggest economies, the United States and Japan. But Barclays Capital analyst David Woo says this is not so and that Russia, Canada, Australia and Sweden are the most vulnerable.

Woo studied various factors that would play on the effect of protectionism on a country, from openness and flexibility to its dependence on trade and it savings.

Japan turned out to be the least vulnerable. "Its relative closeness, relative flexibility of its labour market, and its terms of trade more than outweigh the negative contribution to its growth from a narrowing of its trade surplus in a global protectionist environment," Woo writes.

As for the United States, "the only reason why it failed to take first place is because of its extremely low saving rate, which will limit the scope for domestic demand to offset falling exports."

Mexico,  India and China took the third, fourth and fifth places, respectively. So it's not all about emerging markets.

Everybody’s doing it

Few politicians so far are calling for protectionism.

Among economic and diplomatic policy-makers, openly advocating protectionism is about as socially acceptable as promoting child pornography.

So how to explain the slew of tariff hikes, export subsidies, non-tariff barriers, stimulus packages and bailouts — highlighted in a report at the World Trade Organisation – which all have the effect of slowing imports, boosting exports and generally promoting jobs at home at the expense of competitors?

The answer: they are not protectionist. Everybody says so.

New subsidies for French carmakers? Not a whiff of protectionism, says French Economy Minister Christine Lagarde. It’s all about research and development.

Export subsidies resumed for EU dairy produce? Not protectionism, says EU Trade Commissioner Catherine Ashton. It’s just a technical measure triggered by market prices.

China, and the slowdown showdown

America caught a cold and now China has one too. 

IMF chief Dominique Strauss-Kahn said on Monday that the Fund could cut its forecast for China’s economic growth in 2009 to around  5 percent. To think that only last year China was galloping at a double-digit clip. It’s staggering, and it’s worrying.

Worrying, for one thing, because  - as the Heritage Foundation’s Derek Scissors puts it - ”the American economic slump is running into the Chinese economic slump, creating the conditions for a face-off between Beijing and the U.S. Congress, possibly leading to destabilization of the world’s most important bilateral economic relationship”. 

He argues that the new U.S. administration, confronted with a record-breaking bilateral deficit and soaring unemployment, could impose prohibitive tariffs or erect other barriers to Chinese goods. The EU, Japan and others would then be permitted by WTO rules to raise barriers against a diversion of Chinese goods to protect their markets, and “some form of Chinese retaliation is certain”.

“If intemperate, such retaliation will prompt further action by the U.S. and perhaps other countries, threatening the global nature of the trading system,” Scissors concludes.

Michael Pettis, a professor of finance at Peking University, blogged on the same theme last month, warning that Smoot Hawley, the notorious U.S. tariff act that contributed to the Great Depression of the 1930s, could return in a different guise.