The collapse of global trade, murky protectionism, and the crisis:

1. Protectionism and the global economic
crisis – the role of trade in the response
Simon Crean
Australia's Minister for Trade
We see around us evidence of a rolling economic crisis, spreading and deepening
across the global community. What started in the financial sector has moved into the
real economy, forcing company closures and significant job losses. No country is
immune from the fallout. A global response is required.
International trade is one of most important arenas in which we must combat the
real effects of this crisis. Trade is itself a stimulus. World trade grows faster than world
output. Each successful multilateral trade Round has expanded trade growth.
Preserving open trade flows must be a central part of our policy response to the economic
crisis. If it is not, we will be losing a significant opportunity to reinforce other
expansionary fiscal and monetary policy measures taken by governments. If the
world turns inwards on trade, we will be undermining those very same expansionary
efforts.
Trade is the mechanism through which growth and prosperity are transmitted
between countries. Every day billions of dollars of goods and services are bought and
sold around the world, giving consumers access to new products and generating
wealth and prosperity for the people and businesses that make them. According to
OECD analysis, a 10% increase in trade is associated with a 4% rise in per capita
income.
Unfortunately, however, the crisis we now face has thrown this process into
reverse. World trade flows are falling, forcing businesses to close and threatening to
drive millions into poverty. According to the World Bank, 2009 will be the first year
in over a quarter century 1 in which international trade is forecast to fall.
The latest forecasts from the IMF are for world trade volumes to fall by 2.8% this
year. In some parts of the world, the impact is much greater. Already, we have seen
that the value of China's exports fall by 18% in January (year-on-year). Japan's
exports fell 47%. We need to halt these falls and ignite a 'positive feed-back loop' in
which increased trade stimulates growth and growth drives increased trade.
One thing is clear: protectionism is not the answer. In fact, protectionism is a misnomer.
In the long run it protects nothing, but erodes competitiveness, growth,
employment and real incomes. This has never been more true than it is now. A titfor-tat
spiral into protectionism would be self-defeating and would only exacerbate
the global downturn.
This is another reason for us to conclude the WTO Doha Round, which would be
our best insurance against the risk of renewed protectionism. We forget that if all
nations raise their tariffs to their bound rate (the highest rate consistent with their
WTO commitments), exporters from middle and high income countries could face
tariffs twice as high as current levels. A recent paper by IFPRI estimates that the costs
to world trade flows of a global resort to protectionism (where tariffs rise to their his-
1 The Bank has noted that global trade is forecast to shrink in 2009 for the first time since 1982. See
http://www.worldbank.org/html/extdr/financialcrisis/.
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