–- Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The views expressed are her own. –-

When Congress inserted “Buy America” protectionist provisions that required some goods (such as steel, cement, and textiles) financed by the stimulus bill to be made in America, our government invited a trade war with important economic partners.  Now China and Canada are imposing their own protectionist regulations, potentially destroying well-paid American jobs in the export sector.  Other countries may follow suit.

This week China reported that the government now requires stimulus projects to use domestic suppliers when possible, even though in February it promised to treat foreign companies equally.  The Chinese $585 billion stimulus package has resulted in a World Bank growth forecast of 7.2% for China this year, far above other industrialized countries.

And on June 6 the delegates at the Federation of Canadian Municipalities passed a resolution calling on “local infrastructure projects, including environmental projects such as water and wastewater treatment projects, [to] procure goods and materials required for the projects only from companies whose countries of origin do not impose trade restrictions against goods and materials manufactured in Canada.”

The tragic losers of “Buy America” are free trade agreements and potential job growth in the American economy. Seductively, “Buy America” promises workers they can have it all — cheap goods from China, oil from Canada, as well as protection from global competition. But real life just doesn’t work that way.  In reality, “Buy America” is shorthand for fewer jobs as other countries retaliate.

Many markets no longer have national boundaries but global reaches. America sits at the center of global markets for technology, equipment manufacturing, finance, banking, fashion, and advertising — to name but a few. When international markets expand, America grows. When barriers are erected to trade, jobs — and also wages —shrink.

Trade creates jobs not just through investments of foreign companies at home, but also by increasing employment at exporting firms. This effect, though less obvious, is far more significant. That’s why “Buy America” hurts employment.

Andrew Bernard, a professor at Dartmouth College, together with economists Bradford Jensen and Peter Schott, find that firms that trade goods employ over 40% of the American workforce. They conclude that approximately 57 million American workers are employed by firms that engage in international trade.

They analyze American imports and exports using customs documents that accompany shipments of goods crossing the border, along with reports of firms’ employment. The resulting information provides the most precise picture available of the employment effects of American trade.

Back in February, Caterpiller spokesman Jim Dugan declared, “Our position is that, while ‘Buy American’ may sound good, in fact we’re very concerned that if this stimulus legislation contains the ‘Buy American’ provision, other nations and regions of the world would follow our lead and pass similar provisions.”  He was right.

Trade also benefits millions of families who cut their shopping bills by buying low-cost imports. To take just one example, the amount that Americans spend on clothing has declined by 21% in real terms over the past 20 years, yet our closets are fuller than ever.

The benefits of free trade, such as increased employment, higher economic growth, and lower prices, are often taken for granted. But the disadvantages of free trade — such as the occasional instances of shuttered plants and lost jobs where American firms are not as efficient as international competitors — are all too visible.

Trillions of international dollars pass through America each year not because we are isolated, but because we are the hub of the world. Terrorists twice attacked the World Trade Center because the building symbolized international trade. They destroyed a building and murdered thousands of innocent Americans, but they failed to vanquish world trade. Sadly, politicians who erect barriers to trade are hostile not only to trade but to our country and to our jobs.

Jaspal Bindra is Chief Executive, Asia, for Standard Chartered Bank. The views expressed are his own.

Asia has come of age. When leaders from the Group of 20 nations converge in London, Asia’s rising powers - China, India,  Korea and Indonesia - will be sitting at the global high table to decide on ways to reshape the world’s financial and economic order.

There are expectations that the meeting will include concrete steps to revive economic growth, a boost in funding for the International Monetary Fund, and an understanding on the new financial architecture to restore trust in the financial system.

Asian policy makers are looking for two other critical assurances from the meeting: one, that the developed countries will keep their markets open; and two, that global capital flows needed to finance trade and investment will remain unchecked.

No one doubts the difficulty of reaching consensus. But the stakes have never been higher.

Amidst the frenetic attempts by individual governments to tackle the biggest economic crisis since the Great Depression, it is easy to forget that the progressive dismantling of barriers against international trade and investment contributed to the biggest economic boom the world has seen.

More than 200 million jobs were created worldwide between 2000 and 2007, according to the Institute of International Finance, and millions of people in the developing world were lifted out of poverty, as a result of free flow of capital, goods and services.

Yet, as the crisis continues, governments and businesses in Asia are increasingly worried that the world’s biggest and most developed economies will explicitly or implicitly legislate to encourage manufacturers to keep production onshore and, banks and insurance companies to keep money within their borders.

Any such protectionism comes at a dark time. Although Asia remains fundamentally robust, thanks to high private savings, conservative balance sheets of companies and financial institutions and mammoth foreign reserves, the ongoing financial turmoil has caused consumers and lenders in developed countries to tighten their purse strings.

Steps to ensure that trade and capital keep flowing ought to be at the top of the agenda for the G20 leaders.

A good start

Getting developing nations to the table with the Group of Seven developed countries is a good start. The G20 was born as a response to the Asian financial crisis of the late 1990s and, although a G20 group of finance ministers and central bank governors has been meeting since 1999, it is in this financial crisis that its role has taken center stage.

The G20, whose member countries account for over 80 per cent of the world’s output and two-thirds of the world’s population, is a forum which truly represents the global economy. But will it produce real benefits for Asia?

At this summit, the emerging Asian powerhouses are expected to assert more leverage due to the relative strength of their position. Though weakened, the economies of China, India and Indonesia are still expected to show reasonable GDP growth this year of 6.8 per cent, 5 per cent and 4 per cent respectively, according to Standard Chartered economists’ forecasts.

The emerging powers have already notched up some gains. The G20 finance ministers, meeting in London in March, agreed to expand the Financial Stability Forum - a body which will set new standards for global financial institutions — to include developing country members. These countries will also join global forums that will set new international accounting and risk regulatory frameworks.

Greater participation of the rising powers in such key decision-making bodies should help resolve potential conflicts and go a long way in helping to rebalance the world economic order.

Ironically, it is the financial upheaval in the West which has brought the systemic importance of the emerging markets to the forefront. It is now clear that the imbalances between the high saving nations in the East and overspending economies of the West led to the asset bubbles in the United States and Europe.

To correct the imbalances, the big savers, particularly in Asia, will have to find ways to spend more to boost domestic economies. Higher local consumption will help the economies reduce their dependence on exports. Domestic spending will also help ameliorate the slowdown in investments from the West.

China has made a decisive move on this front, with its stimulus plan to spend almost $600 billion, largely in infrastructure projects. It has also pulled out all stops to make foreign direct investments easier for domestic companies.

New trade routes

Asian economies will also need to trade more between themselves and with the Middle East and Africa. That is already happening in some trade corridors. Trade between China and Africa has expanded 20-fold in just over a decade. For some countries in the region, China has replaced the U.S. and Europe as the biggest export market. This process is likely to accelerate as western consumers cut back on spending and increase savings.

Asian members of G20 are also looking to the international financial institutions such as the IMF and the World Bank to revive investments into the region’s developing economies. But the IMF is cash-strapped after bailing out several East European economies. It is hardly in any position to rescue another medium-sized economy in Asia, Africa or Latin America should the need arise.

The meeting of G20 finance ministers made some headway on this issue. The ministers agreed to substantially expand the IMF’s resources, possibly increasing the Fund’s emergency borrowing program by $500 billion, so that the institution can once again play its role as a lender of last resort in times of international crisis.

The Asian Development Bank also plans to triple its capital base to $165 billion, enabling it serve the poorest and most vulnerable sections of population in the region.

Emerging Asian powerhouses such as China and Korea, apart from the established members like Japan, are now expected to provide a significant part of the funding required to recapitalize these global financial institutions.

However, greater monetary contribution from the rising powers would have to be accompanied by giving them a greater say in the running of these institutions. For instance, today, Korea has more than twice the economic output of Belgium, but Belgium’s representation in the IMF is 50 per cent greater than Korea’s. This is where the developed countries will have to give up some more ground.

G20 leaders must accelerate the process of revising the quota allotted to IMF member countries so that the emerging markets can get voting rights in the Fund which reflect their financial weight.

Progress has been made since the G20 leaders first met in Washington in November with the aim to restore normalcy to the global economy and markets. But risks remain.

It was the progressively free movement of capital, goods, people and services across borders that fueled the economic rise of the emerging markets and raised affluence in the developed world. The risk is that this could unravel if the current financial turmoil leads to heightened protectionism, curbed capital flows and fragmentation of the global economy. The G20 has the duty to ensure this does not happen.

– Paul Blustein is a journalist-in-residence at the Brookings Institution. He is writing a book on the World Trade Organization, which will be published in September. The views expressed are his own. —

Telling young people to abstain from sex is “not realistic at all” — new mother Bristol Palin, 18.

The wisdom of Ms. Palin should be borne in mind by the leaders of the Group of 20 nations at their April 2 summit when they turn to trade.

The meeting comes at a time when worries about protectionism are mounting, because a number of countries have raised trade barriers and enacted other quasi-protectionist measures.

It is tempting to say, as many commentators have, that the G20 should vow to shun all new acts of protectionism, including any tariff-raising or more subtle actions such as “buy local” provisions in government stimulus programs. Unfortunately, such blanket pledges will be no more credible than teenage abstinence campaigns. The G20 must be ambitious on trade, but it must also be practical. Minimizing long-term damage to the trading system should be the overarching goal.

The G20’s effort on trade at its first summit last November was loaded with high-mindedness—and, as it turned out, hot air. The leaders said they would “strive to reach agreement” in 2008 in the World Trade Organization’s Doha Round of trade negotiations, which have dragged on for seven years. And they promised to “refrain from raising new barriers” for 12 months.

Alas, violations of both the spirit and letter of the declaration materialized within days of its promulgation.

An effort to convene a meeting to advance the Doha talks fell apart. Meanwhile, Russia raised duties on cars, pork and poultry; India raised tariffs on steel products; Indonesia imposed onerous customs requirements on certain imports. The U.S. Congress included a “Buy American” provision in its economic stimulus package, and Washington has started to bail out the U.S. auto industry, which helps domestic firms at the expense of foreign ones. Other nations are following suit.

As a result, proposals abound for the G20 to approve not only a “standstill” on all tariff hikes but a ban on buy-local preferences and subsidies that favor national producers. Also widespread are exhortations for the G20 to take a “just do it” stance on the Doha Round.

Desirable though it would be to see such an approach endorsed and implemented, the G20 needs to guard against another blow to its credibility. Let’s face some lamentable facts: Auto industries are going to be bailed out, and in an discriminatory fashion. (Congress simply isn’t going to grant loans to Toyota, even though Toyota has large plants in the U.S.) Anti-dumping cases are going to soar. More righteous verbiage from heads of state will do nothing to close gaps in the Doha talks.

So the principles guiding the G20 should be these: Make sure that the rules-based trading system survives. Don’t try now to open markets further; rather, focus on keeping protectionism, and quasi-protectionism, from becoming long-lasting features of the international economy, so that globalized trade can help the world recover and prosper anew. To the extent that anti-market policies are adopted, keep them temporary and limited in scope.

This means first of all shoring up the WTO, which is the ultimate guardian of open markets. The WTO keeps a lid on tariffs of its 153 member countries and adjudicates trade disputes that might otherwise flare into trade wars.

Specifically, the G20 should recast the Doha talks as an emergency anti-protectionism round. The partial deal that is currently on the table, though not at all far-reaching, would lower the legal caps on tariffs that many countries can impose. Adopting a package like that, while postponing action on other, more contentious issues, would help toward insuring against protectionism in the years ahead.

Robert Zoellick, President of the World Bank, and a man who believes that 2009 will be a “dangerous year”, will be speaking on March 31st and has agreed to take questions from Reuters readers.

Zoellick has been outspoken during the current economic crisis predicting the first shrinking of the economy since the ’30s, warning that increased government spending will simply create a ‘sugar high‘ until banks’ toxic assets are dealt with properly, and urging a tougher stand against protectionism.

But the World Bank’s primary focus is on helping developing nations and alleviating  poverty. Earlier this month it published research showing that the spreading crisis will push 46 million more people into poverty in 2009 on top of 130-155 million pushed into poverty in 2008.

With the London summit of the Group of 20 nations on April 2nd fast approaching what do you want to know about the World Bank’s role in shoring up the world economy and helping poorer nations? Use the comments section below, or use the #askwb tag on Twitter, and I’ll get as many of your questions to Robert Zoeliick as possible.

UPDATE: This event has now taken place and you can view the questions we put to Robert Zoellick in the player below. We have no means to pass on any further questions to the World Bank but you are welcome to add your comments on the discussion thread below.

– Paul Taylor is a Reuters columnist. The opinions expressed are his own –

The foreplay to next month’s G20 summit is degenerating into a buck-passing exercise rather than crafting a Grand Bargain to save the world economy and regulate capitalism.

The industrialized powers do not agree on how to arrest the steep slide in output, how to handle collapsing banks, how much market regulation is needed, how to reach a world trade deal and prevent protectionism, or how to redistribute power to emerging nations in exchange for their money.

At this rate, the April 2 London summit — U.S. President Barack Obama’s global economic debut — is highly unlikely to restore confidence.

The United States says other countries must follow its lead and spend more on a fiscal stimulus to boost demand. It is turning a deaf ear to calls for radical financial regulation. Euro zone finance ministers, anxious to preserve the budget discipline that underpins their common currency, are refusing to pile up more debt before their current stimulus efforts have taken effect.

The EU seeks a doubling to $500 billion of the International Monetary Fund’s war chest to bail out countries in trouble, including in eastern Europe, and it wants China, Saudi Arabia, Russia and others to pay most of the tab. Yet there is little sign the Europeans are willing to accept a diminution of their IMF seats and votes to make room for the emerging economies.

Washington and London are resisting pressure from France and Germany for mandatory regulation of all financial markets and institutions, including hedge funds and private equity.

STICKING POINTS

The key trade-offs required involve Germany and China pumping more public money into their economies to boost demand in return for the United States and Britain accepting global rules for regulation of all markets; and the industrialized nations agreeing to yield more power to emerging countries in the IMF, and welcome them into the Financial Stability Forum, in exchange for contributions to bolster the bail-out fund and acceptance of an ambitious world trade liberalization deal.

One of the few items on which there is at least rhetorical agreement is a crackdown on tax havens. This is politically useful to show concern for social justice (and improve revenue collection) at a time when unprecedented amounts of taxpayers’ money are being poured into salvaging banks. But it is hardly the central priority in overcoming the worst financial crisis since the Great Depression.

G20 finance ministers must make substantial progress this week toward a Grand Bargain encompassing a coordinated fiscal stimulus, financial regulation, progress on trade, more money for the IMF and more say for the emerging nations.

Otherwise the London summit may go down in history as a milestone on the descent into depression.

– John Kemp is a Reuters columnist. The opinions expressed are his own –

Commentators are focused on the risk countries will respond to the worldwide slump in demand by resorting to protectionist measures (either competitive devaluations, tariff rises or other trade barriers) in a mutually self-defeating attempt to reserve what remains of shrinking demand for domestic industries — leading to trade wars, a reversal in the trend towards global integration and a fall in living standards.

Parallels with the 1930s abound. But the tariff wars of the 1930s belong to a vanished world of fixed exchange rates, militarism and failed multilateralism. The tariff history of the 1930s is not a good parallel for today’s world.

The real risk is a more insidious undeclared trade conflict based on rises in applied rates, non-tariff barriers, bad faith, and an upsurge in trade defenses as countries try to “allocate” scarce demand and placate industries and workers under particular pressure.

RAISING APPLIED TARIFF RATES

Each WTO member has a schedule of commitments in which it has agreed to “bind” the duty levied on particular items at no more than a specified rate.

The tariff binding is a maximum; applied rates are often below it, in some cases by a substantial margin. The differential between applied rates and bound rates is a measure of how far countries could raise their tariffs in practice without violating their WTO commitments.

Advanced economies generally have very low bindings on most tariff items (no more than 0-5 percent) so the risk is not high. But emerging economies often have relatively high bound rates and actually apply rates at considerably lower levels so they have scope to raise tariffs within the WTO framework.

The risk is greater for long-standing members of the GATT (such as India) or relatively unimportant countries in the trading system, since they did not start to come under pressure to bring them down as part of multilateral negotiations until the 1970s and 1980s and still have relatively high bindings.

There is less risk for new members, such as China, because other WTO members drove hard bargains during the accession negotiations during the 1990s, and bindings usually cover a much wider range of items at lower levels.

RAISING NON-TARIFF BARRIERS

The WTO agreements go to great lengths to restrict the use of health, safety and other technical standards to ensure they are not used as covert trade barriers.

But this is a complex and very grey area. It is made harder because the WTO agreements try to enforce free trade while respecting the right of states to take measures to protect their own citizens. So the controls on health, safety and technical regulations give states considerable discretion in how these measures are applied, which opens the scope for abuse.

Lobbies for domestic producers are skilled at proposing government regulations which appear to be neutral in theory between the domestic industry and importers but which discriminate in practice.

BREAKDOWN OF GOOD FAITH

The WTO system relies to a considerable extent on the good-faith of its member countries. Treaties are concluded between sovereign entities so they differ from ordinary private contracts particularly in their enforcement mechanisms. In general, states are assumed to be honor bound to observe their obligations and do nothing to undermine the spirit or operation of the treaty.

Most treaties do contain some arbitral mechanism for settling disputes, but it is often quite a weak one.

Crucially, the powers of the arbitral mechanism are usually limited. States may be ordered to comply with the arbitral decision and change their behavior in future, but treaties do not usually provide for retroactive compensation for non-performance of obligations.

The WTO has one of the most elaborate dispute settlement systems in international law, which is often held up as a model for other treaties. But the system suffers from the same drawbacks as others.

The WTO provides a fixed and fairly tough timetable for settling disputes (and hearing appeals) designed to prevent parties spinning out the proceedings. Even so, it can take 2-3 years to obtain a definitive ruling. Once the ruling is definitive, the defaulting state is given a grace period to come into compliance.

Only if it fails, are “sanctions” applied. But such sanctions are prospective (affecting future trade). There is no retroactive compensation for any trade lost during the previous period of non-compliance.

The system is vulnerable to being “gamed”. A dishonest state might introduce trade restrictions (especially non-tariff barriers or trade defences) that it knows or suspects will be found non-compliant, knowing it can gain the benefit of the added protection for 2-3 years before having to change, and suffer no penalty for the benefit it has dishonestly obtained.

Has this ever happened? Trade lawyers are paid very large sums of money to come up with convincing arguments for all sorts of protective measures designed to make them seem WTO compliant.

But there have certainly been a few instances over the last 25 years in which states have pushed the envelop and imposed measures that were highly dubious and seemed prepared to spin out the dispute settlement system to satisfy domestic audiences, knowing there would be no penalty for being found non-compliant at some future date.

So far, most countries in most cases have acted in good faith. But as trade tensions escalate, there is really nothing to prevent more countries in more disputes acting in bad faith, introducing various non-tariff barriers, gaining 2-3 years worth of protection, and worrying about whether they are WTO compliant in 2012-2013, when the crisis might hopefully be past.

INCREASED USE OF TRADE DEFENSES

WTO obligations appear to be tightly binding, but in fact the system contains a number of built in “safety valves” designed to allow countries to reintroduce higher tariffs well above the bound rates on a selective basis against imports from selected countries.

These “trade defenses” include antidumping duties, countervailing duties against foreign subsidies, and safeguard measures designed to protect domestic producers from a sudden and unforeseen surge in imports while they restructure to meet the competition.

Antidumping and countervailing duties have their origins among the major trading countries of Canada, United States, Europe and Australia before the Second World War. They were retained in the GATT/WTO and left in place through successive rounds of negotiations at the insistence of these countries, especially the United States.

US officials have often made the point that these measures serve the role of a “safety valve” within the international trading system. They help sustain a broad political consensus in favor of trade liberalisation by allowing WTO members to raise tariffs in specific cases where the pain of competition becomes too great. In this view, adherence to the general principle of trade liberalization is strengthened by allowing countries to deviate from it in individual exceptional cases.

Until the 1980s, antidumping and countervailing duty laws were used almost exclusively by the main advanced economies (United States, EU, Canada, Australia) against one another and imports from the developing world.

Antidumping and countervailing duty actions were seen as the rich world’s way to block painful imports from low-cost emerging markets, particularly those with export-led growth strategies.

But since the 1990s, many developing countries have enacted antidumping and countervailing duty statutes. The number of AD and CVD actions has been proliferating rapidly in recent years, and many actions are now launched by developing countries against one another, or even against imports from the advanced countries.

The risk is that in a downturn, with exchange rates shifting substantially and altering relative competitiveness, WTO members could increasingly resort to antidumping and countervailing duties or safeguard tariffs to offer a measure of protection to domestic producers under pressure. As with the non-tariff barriers, there may also be a temptation for countries to impose duties now and worry about proving WTO compliance later.

For previous columns by John Kemp, click here.