Wednesday, September 23, 2009

G-20 - Vows Against Protectionism Not Always Kept

By David J. Lynch, USA TODAY

As President Obama and other leaders of the G-20 nations prepare to meet today in Pittsburgh, it's worth recalling what became of their previous promises.

At earlier summits, G-20 leaders solemnly vowed to refrain from worsening the crisis by erecting new trade barriers — then returned home and promptly began erecting new trade barriers.

Since November's Washington gathering, G-20 members have enacted about 100 separate trade-restricting provisions. Last week, for example, the U.S. announced a 35% tariff in response to what it called a damaging surge of Chinese-made tires.

"On average, a G-20 member has broken the no-protectionism pledge every three days," concludes a study by the Centre for Economic Policy Research in London. Still, the largest impact on world trade has come from the credit crunch and recession. This summit, expected to center on a U.S. proposal to rebalance the global economy, is likely to yield a renewed endorsement of open markets. "We're going to keep this under control," says Uri Dadush, of the Carnegie Endowment's international economics program.

But some worry that major nations may yet stumble into a costly trade spat. "It's going to get nasty. ... You're talking about a war that could potentially involve more than just goods and services," says David Smick, who heads a global investment consulting firm in Washington, D.C.

Example: China's Assets Supervision and Administration Commission last month warned six foreign banks that its state-owned companies might refuse to honor derivatives contracts that had produced unexpected financial losses.

The global economy is stronger than when the G-20 last met in April. Michael Mussa, former chief economist of the International Monetary Fund, expects solid growth of 4.2% next year. "Deep recessions are followed by steep recoveries," he says.

Asia's turnaround has been impressive. China is expected to grow 8.2% in '09 before rising to almost 9% next year, says the Asian Development Bank.

Trade flows, however, remain deeply depressed. U.S. exports of $86.7 billion in July were more than 26% below the level of the same month in 2008, according to Commerce Department data.

One fear: An anemic global recovery would leave unemployment elevated. And that could prompt countries to protect domestic jobs at the risk of inviting retaliation from abroad.

"It could be a real problem for the world trading system," says Fred Bergsten, director of the Peterson Institute for International Economics.

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