Protectionism Won't Work

In recent years, multilaterialism has fallen out of favor. Brokering agreements of any kind among 200 countries is difficult and time-consuming. Reaching compromise is often a messy business, and no cooperative solution is ever perfect. Such stresses and strains have led some to conclude that unilateralism or "coalitions of the willing" represent the best hope for addressing global problems, not only in politics, but also in economic spheres like trade. (Story continued below...)

As the financial crisis has bled into the real economy, governments have considered raising trade barriers to protect domestic industry.

Many have also sought to define their trade interests more narrowly through bilateral or regional agreements that discriminate between trading partners.

Such protectionism is on the rise. But those who would question the merits of further global trade liberalization via the WTO's current Doha round of trade talks should remember that the GATT-WTO framework has enabled world trade to grow more than thirtyfold since 1950, and has provided an insurance policy against protectionism. It is often forgotten today that passage of the tariff raising Smoot-Hawley Act in 1930 helped to turn a financial crisis into a full-blown depression. If we are to avoid disaster and bolster growth today, the trading system needs to be made more equitable for developing countries and more relevant to international commercial activity in the 21st century.

This is why the ambitious and development-oriented Doha round is so crucial. Economists conservatively estimate that a Doha deal along the lines of what is on the table today would boost global GDP by $100 billion each year. It would also cut export taxes by $150 billion. It might also restore governments' faith in multilateralism. Such a success would give nations more confidence in each other as they seek critical agreements on other subjects like climate change, reform of international institutions and rules for international finance.

Getting there will be impossible without the support of the United States. Here, President Obama faces a major challenge: reviving America's belief in trade. A survey conducted in 2008 found that only 53 percent of Americans think trade is good for their country. But the facts tell another story. In 2007, exports of U.S. goods and services rose by $190 billion; 2008 figures may rise by about $300 billion. As the financial crisis has sapped consumer spending, global trade and exports abroad have acted as a buffer, constituting by far the largest growth segment of the overall economy. Without free trade, the world would be in much worse economic shape than now.

Many Americans blame trade for job losses and stagnating wages. But until the financial crisis struck, the unemployment rate in the United States had been below 5 percent, near historic lows. And while trade does create both winners and losers, Harvard professor Robert Z. Lawrence argued convincingly in a 2008 study that the stagnation of middle- and working-class wages is largely attributable to the larger share of the profits that has gone into the hands of the superrich. Technological advance is also a major factor in sluggish wage growth in the United States. Yet Lawrence also shows that U.S. economic output is 10 percent higher than it would be were the country less open to trade.

These are difficult times, and people are looking for a scapegoat for their declining fortunes. Trade is an easy one, but turning our back on a multilateral trade agenda now, as the entire world economy slows, could have disastrous consequences. President Obama will have the difficult but vital job of convincing his fellow citizens that the route to better times runs through greater engagement with the global community—not in building economic walls.

Protectionism Won't Work | News
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