G-20 Should Be Pragmatic About Protectionism

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.

Originally submitted to the Great Debate by Paul Blustein on March 30, 2009.