Edmund Conway: We are entering a new age of protectionism
[Edmund Conway is Economics Editor of The Telegraph newspapers and website.]
When Barack Obama, Gordon Brown and their colleagues in the G20 conclude this week's summit in Pittsburgh, at least one item in the final communiqué is a dead cert. As they did in London six months ago, and Washington six months before that – and, indeed, at every major summit in living memory – the leaders will state clearly and firmly that they deplore any attempts by countries to lurch into protectionism, promising to do everything in their power to ensure countries do not erect economic barriers and imploring their trade negotiators to get the Doha Round of trade negotiations back on track.
It is ironic, then, that the one area in which governments have truly failed since the financial crisis began is in resisting the tendency towards economic nationalism. According to Global Trade Alert, an authoritative annual study from the Centre for Economic Policy Research in the US, governments around the world have – despite all their promises – implemented around 70 protectionist measures each quarter this year.
Some are "traditional" measures, familiar from the Depression and elsewhere – subsidies for domestic producers or tariffs on imports, President Obama's move to slap a 35 per cent charge on Chinese tyres being a prime example. Such measures are provoking fury, and with good reason: the protectionist spiral into which the world plunged in the 1930s almost certainly contributed to the war at the end of the decade.
However, such visible signs of protectionism tell a fraction of the story. For the shocking truth is this: over the past year, the costs and obstacles faced by exporters have, according to a study by economists David Jacks, Christopher Meissner and Dennis Novy, increased by almost the same scale as in the early 1930s when the US and others were imposing a range of protectionist laws, including the infamous Smoot-Hawley Act.
Partly this is one of the perverse consequences of the financial crisis, which crippled the system of trade credit that underpinned the international flow of goods, making it impossible for some companies to ship products from one part of the world to another. But, far more worryingly, it is also a product of explicitly protectionist measures imposed by countries such as the UK in an effort to save their domestic banking systems from collapse. Most egregiously, these included so-called financial mercantilism, whereby governments, having rescued a bank, insisted that it had to lend far more to domestic customers than business or individuals overseas businesses.
This new protectionism is a different beast from that of the early 20th century, but the result is the same. According to the Bank for International Settlements, the amount of money flowing across national borders has collapsed in a way never before witnessed. Put simply, financial globalisation, which helped power economic growth in recent years, has gone into reverse over the past year. All the more worrying is that it has done so without people noticing...
Read entire article at Telegraph (UK)
When Barack Obama, Gordon Brown and their colleagues in the G20 conclude this week's summit in Pittsburgh, at least one item in the final communiqué is a dead cert. As they did in London six months ago, and Washington six months before that – and, indeed, at every major summit in living memory – the leaders will state clearly and firmly that they deplore any attempts by countries to lurch into protectionism, promising to do everything in their power to ensure countries do not erect economic barriers and imploring their trade negotiators to get the Doha Round of trade negotiations back on track.
It is ironic, then, that the one area in which governments have truly failed since the financial crisis began is in resisting the tendency towards economic nationalism. According to Global Trade Alert, an authoritative annual study from the Centre for Economic Policy Research in the US, governments around the world have – despite all their promises – implemented around 70 protectionist measures each quarter this year.
Some are "traditional" measures, familiar from the Depression and elsewhere – subsidies for domestic producers or tariffs on imports, President Obama's move to slap a 35 per cent charge on Chinese tyres being a prime example. Such measures are provoking fury, and with good reason: the protectionist spiral into which the world plunged in the 1930s almost certainly contributed to the war at the end of the decade.
However, such visible signs of protectionism tell a fraction of the story. For the shocking truth is this: over the past year, the costs and obstacles faced by exporters have, according to a study by economists David Jacks, Christopher Meissner and Dennis Novy, increased by almost the same scale as in the early 1930s when the US and others were imposing a range of protectionist laws, including the infamous Smoot-Hawley Act.
Partly this is one of the perverse consequences of the financial crisis, which crippled the system of trade credit that underpinned the international flow of goods, making it impossible for some companies to ship products from one part of the world to another. But, far more worryingly, it is also a product of explicitly protectionist measures imposed by countries such as the UK in an effort to save their domestic banking systems from collapse. Most egregiously, these included so-called financial mercantilism, whereby governments, having rescued a bank, insisted that it had to lend far more to domestic customers than business or individuals overseas businesses.
This new protectionism is a different beast from that of the early 20th century, but the result is the same. According to the Bank for International Settlements, the amount of money flowing across national borders has collapsed in a way never before witnessed. Put simply, financial globalisation, which helped power economic growth in recent years, has gone into reverse over the past year. All the more worrying is that it has done so without people noticing...