Wall Street Journal
Opinion – By Gordon Brown
May 28, 2009
Barriers to commerce are a surefire way to prolong the recession.
At the G-20 meeting in London in April, the leaders of the world’s largest economies agreed to ensure the $250 billion that would be needed to finance international trade over the next two years. They also agreed on new measures for monitoring trade and investment to prevent trade barriers from being erected, and to make a renewed push to conclude the Doha Round of World Trade Organization (WTO) negotiations.
It is now even more urgent that we move ahead with these vital actions. The simple truth is that trade is the most serious casualty of the global financial crisis, with a vicious circle emerging of falls in exports leading to falls in production and rising job losses leading to further falls in consumer demand, exports, etc. We used to think that the countries most affected by the global financial crisis would be those with the largest financial sectors. But it has become increasingly clear that the countries hardest hit are those most reliant on exports.
Japan has lost nearly half of its export market over the first quarter of this year compared to the first quarter of 2008. In China, exports fell 17% from a year ago with an estimated 26 million jobs lost. Exports from the United States declined 30% and imports 34% in the first quarter of this year compared to the last quarter of 2008. And in the Euro area, Germany, the biggest European exporter, has seen its first-quarter exports this year fall by more than a fifth compared to the first quarter of 2008.
Developing countries have been particularly hard hit as a result of declining world trade and falling commodity prices. Some 100 million more people are in poverty as a result of the crisis. All the progress we have made to reduce poverty is in danger of being wiped out.
Just a few months ago, the WTO forecast global trade to fall by 9% in 2009. In simple terms, a banking crisis has become a trade crisis.
There can be no recovery in the global economy without a revival of world trade. Trade was the driver of postwar recovery in Japan, Germany, the rest of Europe and the U.S., and the engine of growth in Asia in recent decades. We must ensure that a revival of world trade leads the global economy once again out of recession.
This collapse in trade is not incidental: It raises questions about how globalization will work in the future. A more interdependent global economy means that a downturn in one country translates more rapidly to a downturn elsewhere. But equally, with the global production chain more interlinked than ever before, we all benefit more quickly and more directly from a pickup in global trading flows.
That is why all major economies need to do whatever is necessary to support growth this year and next, managing their economic policies to maintain global demand as we make the necessary adjustments toward achieving balanced global growth.
But stimulating demand may not be enough. There remains a critical problem with the funding necessary to finance trade flows, the lifeblood of the global economy. If banks cannot provide the financing, the international community must step in to fill this gap.
At the G-20 meeting, governments agreed to ensure $250 billion of trade financing over the next two years. While credit markets have loosened up, our second step must be to ensure that governments and international organizations honor the commitments they made. Indeed, we may need to go further and provide even more money to finance international trade.
We also need to reaffirm our commitment to resist protectionism, especially when rising unemployment increases the pressure and temptation to put up trade barriers. Creating more barriers to global trade is a surefire way to prolong the recession. That is why we must act after we receive the WTO’s first quarterly report following the London G-20 meeting, highlighting any measures being taken by countries that have the potential to interfere with the free flow of trade.
Finally, it is essential to conclude the Doha round of trade liberalization talks. Success here would be the strongest signal world leaders could send about their commitment to a global recovery based on open markets and an approach to globalization that is inclusive and sustainable.
At the G-20 meeting in London, the world came together to agree to take action for a global economic recovery. The livelihoods of millions of our citizens depend on our commitment to deliver on the promises we made. We, and more importantly they, cannot afford to fail.
The collapse of global trade is the most immediate issue we face. We must show once again our determination to fight back.
Mr. Brown is prime minister of the United Kingdom.