Containing Creeping Protectionism: a Realist Agenda for the G20
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A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Erixon, Fredrik Research Report Containing creeping protectionism: A realist agenda for the G20 ECIPE Policy Brief, No. 1/2009 Provided in Cooperation with: European Centre for International Political Economy (ECIPE), Brussels Suggested Citation: Erixon, Fredrik (2009) : Containing creeping protectionism: A realist agenda for the G20, ECIPE Policy Brief, No. 1/2009, European Centre for International Political Economy (ECIPE), Brussels This Version is available at: http://hdl.handle.net/10419/174750 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. 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Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu POLICY BRIEFS No. 01/2009 ISSN 1653-8994 Containing Creeping Protectionism: A Realist Agenda for the G20 Fredrik Erixon Fredrik Erixon ([email protected]) is a Director and co-founder of ECIPE INTRODUCTION especially the European members. The global trade Expectations run high for the G20 summit in Lon- agenda is expected to be boosted by renewed calls don in early April. Governments will report on their from the G20 to finish the Doha Round of trade nego- advancement of the plan set out at the last summit in tiations. Reforms of the International Monetary Fund, Washington. This plan is primarily concerned with mainly involving an increase in the role of big emerging transparency and regulations in the financial sector, powers, are expected to be co-ordinated. Calls for a and governments are expected to commit to further grand re-engineering of global balances are likely to be work on the items of the agenda. But it is the off-agen- echoed. Stronger pledges on the need to fight climate da items that have aroused most expectation. European change and terrorism will be proposed. governments agreed at a “local” G20 summit in Berlin All this is underpinned by hopes of fostering a new ar- earlier this year to use the London summit as a vehi- chitecture of global economic governance – a new Bret- cle for two “old” wishes – to increase the regulation of ton Woods system. This summit, it has been said, is the hedge funds and to turn the heat up on tax havens. The “moment of truth” for world leaders to re-write the con- United States, on the other hand, has called for a con- stitution of the global economy and, in the words of Presi- siderable increase in fiscal stimulus by G20 countries, dent Sarkozy, to civilize the raw nature of capitalism. SUMMARY The G20 summit in London offers an ties of global economic co-operation. have imposed protectionist measures. opportunity for world leaders to prevent This Policy Brief is concerned with Governments have not responded to a continued slide towards protection- what should be the relevant trade the economic crisis with massive pro- ism. Yet the summit is already at risk agenda for the G20. At the summit in tectionist measures. It is rather creep- of ending in failure as expectations run Washington, D.C. last autumn, the G20 ing protectionism that has characterized too high. The agenda is already far too agreed that no country should impose recent trade policies. However, as the wide and cover areas characterized by new barriers to trade. G20 leaders also crisis deepens countries are likely to sharp differences of opinion rather than instructed their trade ministers to agree increase protectionism. The chief task an emerging consensus. Individual mem- on a headline deal for Doha Round be- now is to prevent such a development, in bers have also thrown in additional wish- fore the end of 2008. However, nothing particular the risk of escalating tit-for-tat es for what the summit should achieve. has happened in the Doha Round since protectionism. This Policy Brief sets out a Furthermore, G20 rhetoric is ingrained in the last G20 summit, and it took only a six-point agenda to contain protectionist global governance romanticism, but the few days until a G20 country had im- threats. naïve hopes of building a new Bretton posed new trade barriers. Since Novem- Woods system will meet the hard reali- ber last year, 17 of the G20 members One can understand the high level of ambitions. The of tit-for-tat protectionism as in the 1930s. On June 17, global economy has contracted, and even if the decline 1930, the U.S. enacted its Smoot-Hawley Tariff Act which is soon levelled out, annualized, trade figures for 2009 sharply increased tariffs on several hundred goods. Other will be in the red. The World Trade Organisation (WTO) countries retaliated, and this spiralling protectionism has predicted that global trade will fall by 9% in 2009. In helped to turn a financial crisis into a decade-long depres- countries such as China, Germany and Japan the decline sion. Between 1929 and 1932 world trade fell by 30% and in trade will be even bigger. Naturally, such figures invite it took another four years until trade had recovered back references to the Great Depression in the 1930s and trig- to the aggregate volume of 1929. Furthermore, as the ger fears over a similar development today. prices of many traded goods fell sharply the value of trade Yet the G20 will fail to live up to the high expectations. consequently took a sharp hit. International prices on And it will fail even if the ambitions with a strong flavour food and raw materials fell by 60-70% between 1929 and of political romanticism are neglected. We are not, as has 1932.1 While some hoped protectionism in the interwar been suggested, at a “1944 moment” in the history of the years to be temporary, barriers did not disappear quickly. world economy – a moment for building up new institu- Governments had to spend a few decades negotiating in tions to regulate and supervise the world economy. Ref- the GATT and other international organizations to get rid erences to the Bretton Woods summit in 1944, and the of the protectionism imposed during the interwar period. twin organisations founded at the summit (the IMF and Alarm bells should ring when countries are getting the World Bank) are misplaced. Institutional engineering closer to the trade and monetary policies pursued in the then concerned an economy which looked very different early 1930s. However, fears over a repeat today of tit- from today’s world economy. It took the Second World for-tat tariff protectionism have not yet materialized. Ac- War and a serious turn to economic nationalism to foster cording to recent surveys by the World Trade Organisa- the spirit necessary to forge an international agreement, tion and the World Bank, there is not much evidence of effectively between a fairly small number of countries. a sharp rush to increased tariffs.2 Only about a handful Furthermore, global economic co-operation in 1944 of countries have increased tariffs since the crisis started started almost from scratch – in the debris of the col- last autumn (Argentina, Brazil, Ecuador, India, Indonesia, lapsed League of Nations. Today the world has plenty of Russia, and Turkey)3, and the increases have covered only institutions, multilateral and regional, for economic co- a limited number of goods.4 These new tariff are vexing operation. New forms of co-operation will have to start and destroy trade, but they do not pose systemic threats from the existing institutional structure and not from a to the world economy or to the integrity of the world blank slate. G20 leaders may or may not have a strong trading system. desire to engage in serious re-engineering of global eco- Nor are there reasons to believe a destructive scenario nomic institutions, but the brutal fact is that there are of spiralling tariff protectionism to be an imminent threat. stark differences between countries that cannot easily be Certainly, some other countries will increase tariffs, be- papered over. It is even more difficult today as there is no lieving it will ease conditions for local companies suffer- global hegemony to lead and finance new initiatives. ing from contracting demand. But such tariff hikes are This Policy Brief aims at setting out a realistic agenda not likely to trigger a retaliatory spiral à la the 1930s, or for the G20 summit. Its prime focus is world trade and to cover goods that are significantly traded. There are two G20 ambitions in trade policy. But the trade agenda is restraining factors. closely linked to other key developments in economic First, countries have bound their tariffs in WTO agree- policy (fiscal policy and monetary policy chiefly) and the ments and understand they will be taken to dispute set- paper will thus cover aspects other than trade policy. tlement if they raise tariffs above these limits. A number of emerging countries with significant tariff water – the difference between the bound levels and the applied lev- TIT-FOR-TAT TARIFF PROTECTIONISM AS IN els – can raise tariffs without violating WTO commit- THE 1930s? ments.